Dallas Ranks in the Top 26 Percent of Cities with Most Overleveraged Mortgage Debtors

overleveraged

With mortgage rates at historic lows, many people might be tempted to buy a home before they’re financially ready.

In order to determine where homeowners have the most unsustainable mortgage debts in the country, WalletHub recently released the 2017 Home Overleverage Report. Their analysts compared the median mortgage debt to the median income and median home value in more than 2,500 U.S. cities.

Dallas did not fare well when it comes to overleveraged mortgage debtors.

“Dallas ranked fairly well when compared to other major cities as it has an affordable median house value at $135,400,” said WalletHub analyst Jill Gonzalez. “However, the median earnings per individual are fairly low at just $27,935, which makes it harder to pay off a $131,144 median individual mortgage debt.”

Many residents are simply taking on more mortgage debt than they can handle, and putting very little money forward as a down payment.

“Being overleveraged can make it harder for homeowners to make their monthly payments, possibly leading to defaulting on their mortgages,” she said. “The city was ranked and scored based on its mortgage debt-to-income ratio and mortgage debt-to-house value ratio. Dallas’ overall rank is mostly due to its high debt-to-income ratio, at 469 percent.”

Mortgage-to-debt in Dallas (99th Percentile = Most Overleveraged):

  • WalletHub home overleverage score: 26.49 (74th Percentile)
  • Median mortgage balance: $131,144
  • Median house value: $135,400
  • Median income: $27,935
  • Mortgage debt-to-income ratio: 469 percent (51st percentile)
  • Mortgage debt-to-house value ratio: 97 percent (88th percentile)

Some of this may be due to the steep increase in housing prices in North Texas over the past few years. It’s not easy to tell if a housing market is overpriced, said Norman Miller, a professor of real estate at San Diego University. He explained that all markets go in cycles, and in supply-constrained markets, the cycles have larger amplitudes. Low interest rates also make housing prices go up and stay up until we see the rate hikes.

“The key ratio is home price to income, but even that must be tempered by loan-to-value (LTV) ratios,” Miller said. “When our debt payments to income ratio is high, then this is a signal that we are near the top, but the markets most sensitive to this are the lower priced and high LTV markets.”

Much of being overleveraged goes back to being realistic about how much home you can afford, taking into account not only the monthly mortgage payment, but also the many expenses that come with home ownership.

“[People considering a home purchase] should make sure that they are buying the home that they can afford and are not overreaching,” Gonzalez said. “It would also help if they could make a higher down payment, effectively reducing monthly payments over the life of the mortgage.”