U.S. household debt has topped the
record level reached in 2008, a milestone for the recovery that shows consumers
are borrowing again,
But while the debt doesn’t pose the
risks that toppled the financial system nine years ago, there are still some
signs of potential trouble, notably high student loan debt and delinquencies.
Debt balances for American
households increased $149 billion, or 1.2%, in the first quarter to $12.73
trillion, the Federal Reserve Bank of New York said Wednesday. That’s modestly
above the $12.68 trillion peak in 2008 and 14.1% higher than the bottom in 2013.
But the makeup of that debt is
starkly different than it was at the brink of the 2008 financial crisis. While
mortgages still comprise the majority of the obligations, they represent a far
lower share and the rebound has been led by student and auto debt.
More on student loan debt:
How
to save money on student loan repayments “The
debt and its borrowers look quite different today,” said Donghoon Lee, the New
York Fed’s research officer. Also, household debt represented nearly 100% of
personal income in 2008, compared with 80% today, presenting a far lower
risk to individual solvency and the broader economy, said Mark Zandi,
chief economist of Moody’s Analytics.
The latest milestone is “a good
thing,” Zandi said. “People need credit to do the things they want to do --
home improvement, start a business. You want credit to flow freely but
consistent with people’s ability to repay.”
In the mid-2000s, lenders too easily
doled out all types of loans, but particularly mortgages, fueling housing and
credit bubbles that ultimately collapsed. Households shed more than $1.5
trillion in debt, most of it housing-related and partly through foreclosures.
In the first quarter, outstanding
mortgage debt increased $147 billion as mortgage originations grew by $491 billion.
By comparison, quarterly mortgage originations were averaging about $650
billion during the housing bubble before plunging to less than $300 billion
four years ago.
Student loan debt rose by $34
billion to $1.34 trillion and was up from about $500 billion in 2007,
trailing only mortgages. Many Americans stayed in school longer or returned to
college to beef up their skills when jobs were scarce in the recession.
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. And credit card debt fell by $15 billion
to $764 billion.
Total delinquency was flat last
quarter at 4.8%, the lowest level since before the recession. But there were
some areas of concern. Eleven percent of student loan debt was at least 90 days
delinquent, a figure the New York Fed said has remained stubbornly high.
Related:
And auto loan and credit card debt
have edged higher, with auto debt that’s at least 90 days delinquent rising to
7.5% from 7.1% during the first three months of the year.
Lenders have responded by tightening
credit standards, a development that Zandi said makes him less worried
about the risk of an auto loan crisis that traces the housing bust. “Balances are increasingly shifting
towards more creditworthy and older borrowers,” New York Fed officials wrote in
a blog post.
Comments
Home
ownership is a retirement investment and everybody should own their home. In
order to pay off your mortgage before you are age 65, you may need to refinance
with a 15 year mortgage loan and save a lot of interest expense.
Credit
Card debt is the worst and should be completely unnecessary. Student loans are
bad and should be avoided like the plague. Auto loans may be necessary if you
need flexibility to get around and save time.
Norb
Leahy, Dunwoody GA Tea Party Leader
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