Distribution of Owner-Occupiers Housing Wealth, Debt and Interest Expenditure Ratios as Financial Soundness Indicators

The dramatic increases in Danish housing prices from 2003 to 2006 cannot be explained satisfactorily by ìfundamentalsî but only by using special bubble criteria. The paper presents a topical analysis of the financial stability of owner-occupiers in the nation with the highest household debt/GDP, highest total liabilities/net wealth and highest mortgage debt/net non-financial wealth ratios among 15 OECD countries using micro data for the Danish owner-occupier families. A primary objective of the paper is to use of the distribution of tax statistics at the micro level to analyze the owner-occupiersí capital structure and interest payments. In a financial soundness perspective macro data are of limited importance as express only total and average changes. Distributional data at the micro level, formed at the family (household) level, are important for recognizing changes in the financial soundness of the nation. The data are used to estimate different important financial indicators. The result is that the financial soundness of Danish owner-occupiers, measured as net liability housing wealth ratios, has not improved since the owner-occupation crisis in the years 1987-1993. Furthermore, their housing wealth/income and net liability/income ratios have increased since 1993 just as in the other OECD countries; on the contrary, net interest expenditure/income ratios have been reduced in a before-tax but not in an after-tax perspective. The substantial heterogeneity of the families is considerably reduced by adjusting for age as a proxy for the life cycle. Moreover, the income variation is also reduced considerably within the age group.