High household debt difficult to hurdle

Households have been running a financial deficit for over a decade, a significant departure from their normal role as net savers, resulting in a massive increase in household debt. This trend has coincided with a sharp run-up in house prices of historical magnitude. Despite still low interest rates, the recent slump in home sales, which began before federal authorities announced further changes to mortgage insurance rules, suggests a growing shortage of willing buyers. If our diagnosis of a housing bubble is correct, then high household debt will soon become a difficult object for the domestic economy to hurdle.