US Households Owe Record Amount, Topping Pre-Recession Peak

It took nine years, but USA household debt has finally topped its peak during the 2008 financial crisis, reaching $12.7 trillion.

The record debt level itself "is neither a reason to celebrate nor a cause for alarm, but it does provide an opportune moment to consider debt performance", said Donghoon Lee, a research officer at the New York Fed.

Non-mortgage debt accounted for 29% of household loans early this year, compared with 21.2% in the three months through September 2008, the report showed.

Total household debt climbed to $12.73 trillion in the first three months of the year, according to data released Wednesday by the Federal Reserve Bank of NY, a $149 billion increase from the end of 2016. Households shed more than $1.5 trillion in debt, most of it housing-related and partly through foreclosures.

Auto loan debt increased by $10 billion to $1.17 trillion and has climbed steadily since the downturn amid low interest rates and dealer incentives. Balances on home equity lines of credit fell slightly in the first quarter, down $19 billion to $456 billion. Of the $764 billion in credit card balances as a whole, the credit card with 90 or more day delinquency rates deteriorated and they now stand at 7.5%.

On student debt, the percentage of student loan balances that transition to serious delinquency has remained high, around 10% and that has been the case over the past five years. Matthew Mish, head of global credit strategy for UBS, expects auto loan delinquencies to continue to rise and says the general increase in delinquencies for non-mortgage debt could be an early signal of an eventual deterioration in the economy.

Student loan balances, meanwhile, added $34 billion with 11% considered 90+ days delinquent or in default. The number of credit inquiries within the past six months, which the New York Fed calls an indicator of consumer credit demand, declined from the previous quarter to 162 million.

"These shifts in borrowing patters and characteristics of borrowers, paired with the long recovery and a strong labor market, have resulted in very low delinquency rates for most types of debts except for student loans", they said.

"Balances are increasingly shifting towards more creditworthy and older borrowers", New York Fed officials wrote in a blog post.

  • Zachary Reyes