Low-income American households are increasingly using profits from cryptocurrency to secure mortgages, pushing the average loan balance up by 150% to $443,000 by 2024, according to the U.S. Department of the Treasury.
A new study by the U.S. Department of the Treasury shows a notable trend: low-income households are increasingly using profits from cryptocurrency investments to secure mortgages. This has led to a significant increase in the scale of loans, raising questions about the financial sustainability of this group in the long term.
The study published on November 26 by the Office of Financial Research at the U.S. Department of the Treasury analyzes tax data and indicates a clear correlation between access to cryptocurrency and a surge in mortgage borrowing among low-income households.
The dual impact of cryptocurrency on the mortgage market
The authors of the study, Samuel Hughes, Francisco Ilabaca, Jacob Lockwood, and Kevin Zhao, found that selling cryptocurrency may have enabled low-income households to access larger mortgage loans due to their ability to put down larger amounts. This phenomenon is particularly prevalent in areas with high cryptocurrency access, identified as zip codes where more than 6% of households reported cryptocurrency-related transactions on their tax returns.
The study indicates that the rate of low-income households with mortgages in these areas has increased by over 250%. More notably, the average mortgage balance has soared by 150% from around $172,000 in 2020 to approximately $443,000 in 2024.
The increase is not limited to mortgages but also extends to auto loans, indicating the broad impact of cryptocurrency on borrowing behavior among low-income groups. Specifically, zip codes with the highest levels of cryptocurrency access have seen the most significant increases in both the number and balance of mortgages and auto loans in recent years.
Although this trend may seem positive in the short term, providing many low-income households the opportunity to own homes and cars, it also carries significant risks. The study shows that low-income households in areas with high access to cryptocurrency often have debt-to-income ratios higher than recommended, signaling a risk of financial instability.
This is particularly concerning given that the cryptocurrency market is notoriously volatile. If cryptocurrency prices drop sharply, these households may struggle to repay their debts, leading to a heightened risk of default and affecting the stability of the financial system.
While the current delinquency rates in these areas remain low, indicating no immediate signs of crisis, researchers warn that borrowing at high debt levels could pose risks in the future if economic conditions worsen. They emphasize the importance of closely monitoring the rise in debt balances and borrowing levels of low-income households with access to cryptocurrency.
The report comes amid a backdrop of total debt among U.S. households, including mortgage debt, auto loans, credit card debt, and student loans, reaching a new record high of $17.9 trillion in Q3 2024, according to the Federal Reserve Bank of New York.