The composition of debt and delinquency rates for mortgages, auto loans, credit cards and student loans, however, have shifted since 2008.
ACA News - 22 May 2017
Total household debt surpassed the peak reached during the 2008 Great Recession in the first quarter this year; however researchers with the Federal Reserve Bank of New York note that the record “took an unusually long time from a historical perspective.”
Total household debt was $12.73 trillion in the first quarter compared to its peak of $12.68 trillion during the recession, according to a news release from the Fed on its Quarterly Report on Household Debt and Credit.
Mortgage balances increased again in the first quarter, while the results were mixed for non-housing balances. Auto loan balances increased $10 billion and student loans increased $34 billion, however consumers’ credit card balances declined by $15 billion to $764 billion.
Overall, the change in debt in the first quarter marked a $149 billion (1.2 percent) quarterly increase and reflects nearly three years of continued growth in debt, according to the Fed.
“Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today. This record debt level 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, research officer at the Fed in a news release. “While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types. Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.”
Lee, Andrew Haughwout, senior vice president in the Fed’s Research and Statistics Group, Joelle Scally, administrator of the Center for Microeconomic Data in the Fed’s Research and Statistics Group and Wilbert van der Klaauw, senior vice president in the Fed’s Research and Statistics Group, analyzed findings in the report in a blog post released May 17.
The Fed also reports that student loan balances have increased every year since it started the research series in 1999.
The composition of household debt this year is very different from 2008.
“Mortgages now have a much smaller share than in 2008, auto and student loans have increased in their share, and balances are increasingly shifting towards more creditworthy and older borrowers. These shifts in borrowing patterns and characteristics of borrowers, paired with the long economic recovery and a strong labor market, have resulted in very low delinquency rates for most types of debts except for student loans,” according to the Fed.
Outstanding student loan balances reached $1.34 trillion as of March 31, 2017 and 11 percent of aggregate student loan debt was 90 days or more delinquent or in default, according to the Fed. Loans with payments that are 90 or more days past due are considered “seriously delinquent.”
Serious delinquency rates for auto loans were flat at 3.8 percent and 7.5 percent in the first quarter for credit cards compared to 7.1 percent in the fourth quarter 2016.
“This quarter saw a notable uptick in credit card debt transitioning into delinquencies, a continued upward trend of auto loans transitioning into serious delinquencies, and student loan transitions into serious delinquencies remaining high,” according to the Fed.
Overall, as of March 31, 4.8 percent of outstanding debt was at some level of delinquency.
“More recently, performance on mortgages has continued to improve, while auto loan delinquency flows have been trending upward since 2012. Credit card transitions have also ticked up. The standout, however, has been student loans—with new serious delinquency flows that deteriorated steadily between 2004 and 2014 and have remained stubbornly high since then,” according to the Fed’s blog.
“The Great Recession led to a household borrowing situation in America that was very different from what we’d seen historically, but in 2007 when the financial crisis began to unfold, there was much less data available to economists on the state of household balance sheets. With better information now, we will continue to share new developments and analysis in the area of household debt.”