Low Income Crypto Investors Using Gains to Buy Houses
27 Nov, 2024 ● Vijesti o kovanicama
A growing number of lower-income households are using profits from cryptocurrency investments to secure larger mortgages, according to a report by research economists at the United States Treasury.
The report, authored by Samuel Hughes, Francisco Ilabaca, Jacob Lockwood, and Kevin Zhao for the Treasury’s Office of Financial Research on Nov. 26, noted:
“Crypto sales may have supported access to larger mortgages through bigger down payments.”
It also highlighted that, “The increase in borrowing is especially striking among low-income households in high crypto exposure areas.”
The researchers observed that in zip codes with significant exposure to crypto, the percentage of low-income households with mortgages surged by over 250%.
Moreover, the average mortgage balance in these areas increased by 150%, rising from approximately $172,000 in 2020 to about $443,000 in 2024.
“Zip codes with the highest crypto exposure saw the largest increase in mortgage and auto loan originations and balances over subsequent years,” the report stated.
The study analyzed tax data to determine areas with higher crypto exposure, categorizing a “high-crypto” zip code as one where over 6% of households reported a cryptocurrency tax event.
However, the report also raised concerns about financial risks. It found that low-income households in high-crypto exposure areas had mortgage debt-to-income ratios significantly above recommended thresholds, indicating potential vulnerability.
“High crypto exposure may be associated with behavior that may contribute to financial instability,” the researchers cautioned.
Despite these concerns, delinquency rates in these areas have remained low, suggesting no immediate financial distress.
The researchers warned, however, that the high leverage observed could pose risks if economic conditions deteriorate or crypto markets experience a downturn.
They concluded that, while there is “little evidence of current distress among households with crypto exposure,” the increasing debt balances and leverage among low-income households in high-crypto areas should be closely monitored.
“Rising distress in this group could cause future financial stress, especially if exposure to these types of high-leverage, high-risk consumers is concentrated in systemically important institutions,” the report added.
The broader context of rising debts is also noteworthy.
According to the Federal Reserve Bank of New York, US household debt reached a record $17.9 trillion in the third quarter, driven by increases in mortgages, auto loans, credit card debt, and student loans.
This highlights the broader financial trends alongside the emerging crypto-mortgage linkage.
Sources:
