Americans have
amassed a record $13.2 trillion in debt, but economists aren’t that worried
about it
US household debt has set
yet another record high. In the first quarter of 2018, it reached $13.2
trillion, a $63 billion increase from the previous quarter. Now, household debt
is half a trillion dollars higher than its previous peak in 2008, according to the Federal Reserve Bank of New York, which uses data
from Equifax.
Most of this debt comes in
the form of mortgages, which increased by $57 billion, to $8.9 trillion, at
the start of the year. Part of the increase is expected due to inflation and population
growth. And there are other reasons researchers at the Fed aren’t too worried
about the mountain of debt that Americans are amassing—yet.
The
growth in debt is slower than before the financial crisis, when mortgage debt
increased as fast as house prices. In the housing market, the proportion of
serious mortgage delinquencies is falling, and is now down to 1.2% of housing debt.
The median credit score for
new mortgages rose to 761 from 755, and the share of those infamous subprime
loans is falling. Mortgages to borrowers with credit scoresbelow
620 was just 3%, compared with 15% in early 2007. (Experian
considers all scores below 670 subprime.)
However, there are more
worrying signs with other types of loans. Delinquency rates for credit cards
and auto loans are rising, while
about 10% of student loans were at least 90 days overdue in the latest reading.
While subprime loans are no longer a serious issue in the mortgage market, they
are still prevalent for auto loans.
In the first quarter, 19%
of new auto loans were issued with credit scores below 620, amounting to $25
billion. Auto-loan delinquencies have been rising since 2012, and at the end of
March 4.3% of auto debt was at least 90 days overdue. The highest rate in the
past 15 years was 5.3% at the end of 2010.
Meanwhile,
wealth from housing has also increased to a record high, at more than $14 trillion.
For the most part, house prices have recovered since the financial crisis—but
homeownership rates haven’t, particular for younger people.
The
homeownership rate for Americans under 35 is just 35%, compared with 43% before
the crisis. For over 65ers, homeownership rates have held steady at around 80%.
“While housing wealth is at an all-time high, it has shifted into the hands of
older and more creditworthy borrowers, in part because of tight mortgage
lending standards,” said Andrew Haughwout, senior vice president at the New
York Fed.
Although
American households, in the aggregate, appear able to withstand a financial
shock thanks to rising wealth and less worrying types of indebtedness, the
details reveal that this is mostly true for older borrowers with higher credit
scores.
Comments
The rise in mortgage
loans is encouraging. Rents are high and single family homes are a much better
deal. It also shows that the economy is coming back to “normal”. The goal is to
buy a house, pay off your home mortgage as quickly as possible and own your
house to reduce your housing costs.
Gone are the days when
a teenager could buy a used car for $2000 from the previous owner and not pay
sales taxes. Young people are getting
ripped with high student debt and new car deals they can’t afford.
Credit card interest
is corrosive and needs to be avoided. US Credit card balances have risen from
$682 billion in 2013 to $825 billion in 2018.
Norb Leahy, Dunwoody
GA Tea Party Leader
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