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Household Debt Rises Above 2008 Peak

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U.S. household debt has topped the record level reached in 2008 just before the housing market crash and global financial crisis, pointing to a recovery in borrowing by consumers.

The Federal Reserve Bank of New York said that total household debt in the U.S. achieved a new peak in the first quarter of 2017, rising by $149 billion or 1.2 percent from the fourth quarter of 2016 to $12.7 trillion.

This is $50 billion above the previous peak reached in the third quarter of 2008. It is also 14.1 percent above the trough set in the second quarter of 2013.

In addition, it marks nearly three years of continued growth since the long period of deleveraging following the Great Recession.

"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 New York Fed.

The record debt level was driven by gains in mortgage, auto and student debt. Mortgage balances, the largest component of household debt, rose $147 billion to reach $8.63 trillion as of March 31.

Auto loans and student loan balances grew, by $10 billion and $34 billion respectively, while credit card balances declined by $15 billion.

Aggregate delinquency rates were roughly flat in the first quarter of 2017, with some variation across product types. As of March 31, 4.8 percent of outstanding debt was in some stage of delinquency, showing a marked improvement from 11.9 percent of debt at the end of 2009.

According to the New York Fed, auto loan and credit card delinquency flows are now trending upwards, while those for student loans remain stubbornly high.

Compared to 2008, balance sheets also look different now, with less housing-related debt and more student and auto loans.

The rising debt level shows that Americans are borrowing again as the U.S. economy recovers. Debt can trigger consumer spending, which accounts for nearly 70 percent of all economic activity in the U.S.

by RTT Staff Writer

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