Total Household Debt Approaches Peak Reached in 2008 Recession

All types of debt, led by credit cards, increased last year and the Federal Reserve Bank of New York predicts total household debt will reach its peak from nine years ago—12.68 trillion—this year.

ACA International - 23 February 2017

Total household debt to end 2016 increased the most in three years and is approaching peak levels reached in the third quarter of 2008, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit released this month.

Debt, including mortgages, student loans, auto loans and credit card balances, increased by $226 billion (1.8 percent) to $12.58 trillion in the fourth quarter of 2016, according to a news release from the Fed.

“This marked the largest quarterly increase in total household debt since the fourth quarter of 2013, and debt today is now just 0.8 percent below its peak of $12.68 trillion reached in the third quarter of 2008,” the Fed reports.

All types of debt increased from the third to fourth quarter, with the highest surge being in credit card balances (4.3 percent); followed by 2.4 percent for student loans; 1.9 percent for auto loans and 1.6 percent for mortgage debt.

“This boost in balances was in part driven by new extensions of credit, with a large increase in the volume of mortgage originations and a continuation in the strong recent trend in auto loan originations,” according to the Fed.

The Household Debt and Credit Report offers an updated glimpse at household trends in borrowing and indebtedness, including data about mortgages, student loans, credit cards, auto loans and delinquencies.

Key findings in the report include:

  • While credit card balances continued to increase, the aggregate credit card limit increased for the 16th quarter in a row. Credit card balances increased by $32 billion in the fourth quarter.
  • Student loan balances have increased every year in the 18-year history of the Fed’s Household Debt and Credit Report, including by $31 billion in the fourth quarter.
  • 2016 marks a new annual record for auto loan originations in the history of the report, and auto loan balances continued their consistent increase. Auto loan balances increased $22 billion in the fourth quarter.

The Fed’s Research and Statistics Group, including Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, further evaluated the report and data from 2016 in a blog post on how household debt changed last year as well as how the composition of debt compares to when it peaked in the third quarter of 2008.

The total debt is 0.8 percent, or $99 billion, below the 2008 peak of $12.68 trillion.

“But debt looks very different in 2016 than it did the last time we saw this level of indebtedness,” the group reports. “The composition of debt has also changed over time. In 2008, mortgage and [Home Equity Lines of Credit] HELOC debt made up 79 percent of household liabilities, a figure that had been fueled by the rapid growth in house prices during the boom. Yet in this recovery, at least in the years leading up to 2016, the rebound in debt has been driven by student and auto debt, rather than housing debt. Now housing-secured debt makes up just 71 percent of total household liabilities, a level even lower than the 74 percent observed in 2003, as the housing boom was under way.”

In 2016 household debt increased $460 billion, the strongest amount in nearly 10 years. Credit card debt increased by 6.3 percent, or $4.6 billion, during the year and student loan debt also increased $78 billion, 6.3 percent, in 2016.

“As of Dec. 31, 4.8 percent of outstanding debt was in some stage of delinquency. Of the $607 billion of delinquent debt, $412 billion was seriously delinquent (at least 90 days late, or ‘severely derogatory’),” the Fed also reports.  

The fourth-quarter delinquency rates are considered stable and declined when compared to 2015.
The Fed stressed that, at the recent growth rates, household debt will reach its peak from 2008 this year.

“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,” said Wilbert van der Klaauw, senior vice president at the New York Fed in the news release. “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.”