More lower-income households are using gains made from crypto investing to take out mortgages, according to a report by research economists at the United States Treasury.
In low-income households, “crypto sales may have supported access to larger mortgages through bigger down payments,” researchers Samuel Hughes, Francisco Ilabaca, Jacob Lockwood, and Kevin Zhao wrote in a Nov. 26 report for the Treasury’s Office of Financial Research.
“The increase in borrowing is especially striking among low-income households in high crypto exposure areas,” they added.
The report said the percentage of low-income households with mortgages in high crypto-exposed areas increased by over 250%, and the average mortgage balance rose by 150% from around $172,000 in 2020 to roughly $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 study used tax data to determine which areas had higher exposure to crypto assets, classifying a “high-crypto” zip code as one with more than 6% of households reporting a crypto tax event.
A new OFR Brief examines the relationship between crypto exposure and the increase in household debt since the COVID-19 pandemic.https://t.co/0h1aCfqhFh
— Office of Financial Research (OFR) (@OFRgov) November 26, 2024
Additionally, low-income households in high-crypto exposure areas reported mortgage debt-to-income ratios significantly above recommended levels, highlighting potential vulnerability to financial instability.
“High crypto exposure may be associated with behavior that may contribute to financial instability,” the researchers stated.
Delinquency rates in these areas have remained low, suggesting no immediate distress. Still, the researchers noted that high leverage may pose future risks if economic conditions worsen.
Mortgage holder, balances and delinquencies by income and crypto exposure: Source: OFR
The researchers concluded that there was “little evidence of current distress among households with crypto exposure,” adding that an important takeaway for future monitoring “is the increased debt balances and leverage among low-income households with crypto exposure.”
“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.”
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While the trend has not resulted in higher delinquencies, it may create financial stability risks if adverse economic conditions arise or crypto markets crash, the research economists said.
Higher debts for mortgages, auto loans, credit cards and student loans drove overall US household debt to a new record of $17.9 trillion in the third quarter, according to the Federal Reserve Bank of New York.
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