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US household debt almost at pre-recession levels

Debt held by private individuals in the US is approaching its 2008 peak, but there's a much healthier picture now. The proportion made up by mortgages is significantly lower - as is delinquency.

US household debt notched up its biggest increase in 10 years, nearly approaching the level before the Great Recession, according to a report from the New York Federal Reserve released Thursday.

Total debt grew by $460 billion (432 billion euros) year-on-year to reach $12.58 trillion - just 0.8 percent below its 2008 peak of $12.68 trillion, the latest Quarterly Report on Household Debt and Credit said.

But despite the similar numbers, the overall debt picture is much different from nine years ago, when unsustainable mortgage debt led to the collapse of the financial sector.

"Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt," New York Fed Senior Vice President Wilbert van der Klaauw said.

"Since reaching a trough in mid-2013, the rebound in household debt has been led by student debt and auto debt, with only sluggish growth in mortgage debt."

Balances on every type of non-housing debt grew in the fourth quarter: auto loan balances increased again, by $22 billion; credit card balances surged by $32 billion, student loan balances rose by $31 billion, and balances on other types of debt grew by $10 billion, the report said.

Paying it back

An important contrast to 2008 was the share of credit that is delinquent. This was 3.3 percent at the end of 2016, well below the 8.5 percent rate of late 2008.

Emphasizing the contrast, the New York Fed tweeted "Q4 2016 saw lowest number of bankruptcy and foreclosure notations in our 18-year data series."

Mortgage debt rose $231 billion (or 2.8 percent) during 2016, along with nearly every other form of debt, including auto debt (up $93 billion, or 8.7 percent), credit card debt (up $46 billion, or 6.3 percent), and student debt (up $78 billion, or 6.3 percent).

The exception was balances on home equity lines of credit (HELOCs), which fell slightly, by about $14 billion (or 2.9 percent) for the year. HELOC debt leveled off in the second half of the year.

Late last year, the International Monetary Fund warned that growing global debt rates - including household debt - posed a "risk to global stability."

sgb/hg (AFP, Fed)

 

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