Crypto Exposure Linked to Rising Mortgage and Auto Loan Debt in Low-Income Households

Economists at the U.S. Treasury recently analyzed IRS data and uncovered a fascinating correlation: rising cryptocurrency ownership is associated with significant increases in mortgage and auto loan debt, particularly among low-income households. The findings shed light on the potential ripple effects of crypto windfalls on household borrowing and financial stability.

Crypto Ownership Triples, Fuels Debt Surge

Between 2020 and 2021, cryptocurrency ownership in the U.S. nearly tripled, according to the Treasury’s analysis of tax returns. This meteoric rise coincided with sharp increases in mortgage and auto loan balances in areas with high levels of crypto exposure.

By 2024, low-income households in these high-crypto areas reported a 150% rise in average mortgage balances, leaping from $172,000 in early 2020 to over $443,000. Economists suggest that profits from crypto sales likely enabled larger down payments, helping families secure bigger loans.

Mortgage Debt-to-Income Ratios Skyrocket

While crypto profits may have helped low-income families achieve homeownership, they also contributed to concerning levels of indebtedness. In high-crypto areas, the average mortgage debt-to-income (DTI) ratio for low-income households reached 0.53—well above the recommended 0.36 and the standard 0.43 threshold for many loans.

By contrast, low-income households in areas with low crypto exposure maintained a much lower DTI ratio of 0.19, with average mortgage balances of $136,481 and incomes of $35,950.

Financial Risks for Low-Income Households

This high DTI ratio in high-crypto areas could pose risks during economic downturns. Elevated debt levels leave households more vulnerable to financial shocks, potentially increasing the likelihood of defaults.

Interestingly, delinquency rates on mortgages have dropped across the board since 2020, with low-income households in high-crypto areas seeing a 4.2% decline, compared to a 3.8% drop in low-crypto areas. As of early 2024, mortgage delinquencies remain at a 15-year low of 1.7%, with no signs of distress in high-crypto areas—for now.

Auto Loan Debt Hits Record $1.6 Trillion

The ripple effects of crypto exposure are also evident in the auto loan market. Between 2020 and 2024, average auto loan balances for low-income households surged by 52% in high-crypto areas, compared to a 38% rise in low-crypto regions.

The data suggests that crypto windfalls may have enabled more vehicle purchases among low-income households. In contrast, middle- and high-income households saw declines in auto loan balances during the same period, although those in high-crypto areas experienced smaller reductions or even slight increases.

Auto Loan Delinquencies Hold Steady

Despite the sharp rise in auto loan debt, delinquency rates for auto loans have remained stable, particularly for middle- and high-income households. This suggests that the increase in auto borrowing has yet to translate into widespread financial distress.

Crypto’s Mixed Blessing

The U.S. Treasury’s findings highlight both the promise and peril of crypto exposure for low-income households. While cryptocurrency gains may have provided a pathway to homeownership and vehicle purchases, they have also driven up debt levels to potentially unsustainable heights.

For policymakers, lenders, and households alike, the data underscores the importance of balancing financial opportunity with fiscal prudence—especially as crypto remains a volatile and unpredictable asset class.

This emerging dynamic between crypto and household debt warrants close monitoring. Whether these trends signal growing financial empowerment or a ticking time bomb remains to be seen.