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Twin Trillion-Dollar Bubbles Prompt Dramatic Rise In Non-Mortgage Debt
Don’t look now, but the US is staring down not one but two trillion-dollar bubbles, both of which have been documented here extensively.
The first is the US auto loan bubble which has ballooned to $900 billion on the back of loose underwriting standards. Don’t believe easy credit is behind the inexorable rise in auto loan debt? Consider the following Q1 statistics from Experian which we never tire of showing:
- Average loan term for new cars is now 67 months — a record.
- Average loan term for used cars is now 62 months — a record.
- Loans with terms from 74 to 84 months made up 30% of all new vehicle financing — a record.
- Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
- The average amount financed for a new vehicle was $28,711 — a record.
- The average payment for new vehicles was $488 — a record.
- The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.
Sitting behind the auto lending boom is Wall Street’s securitization machine which will churn out around $100 billion in auto loan-backed paper this year (for perspective, that accounts for around half of total projected consumer ABS issuance). The longer the Fed-driven hunt for yield persists, the more demand they’ll be for this paper and the more demand there is, the easier it will be to get a car loan and larger the bubble will become.
Meanwhile, the nation’s student debt bubble has reached epic proportions, with students and former students laboring (or perhaps "not laboring" is more appropriate given what we know about how difficult it is for degreed millennials to find good jobs) under a debt burden that averages $35,000 per student and totals a staggering $1.2 trillion in aggregate. As we’ve detailed exhaustively, debt service payments on these loans are causing delays in household formation and driving up demand for rentals in a market that’s already red hot thanks to the fact that the collapse of the housing bubble turned a nation of homeowners into a nation of renters.
Considering all of the above, we weren’t at all surprised to learn that US households’ non-mortgage debt is soaring and the two main drivers are student loan debt and auto loans. Here’s more from HousingWire:
Black Knight Financial Services analyzed U.S. mortgage holders’ levels of non-mortgage-related debt and found those levels are at their highest in over 10 years.
What we’ve found is that mortgage holders today are carrying more non-mortgage debt than at any point in the past 10 years, with an average of $25,000 per borrower. That’s $1,400 more on average than one year ago, and nearly $2,600 more than in 2011,” he said. “The primary driver of this increase is a rise in auto-related debt, which accounted for 81% of the overall non-mortgage debt increase over the past four years. We also noticed a clear correlation between non-mortgage debt and borrowers inquiring about a new mortgage, with those who have recent mortgage inquiries on their credit reports carrying nearly 40% more debt than borrowers who do not.”
Black Knight found that the student loan debt of U.S. mortgage holders is at all-time high: 15% of mortgage holders are carrying student loan debt, with average balances of nearly $35,000. The average student loan debt for all mortgages has more than doubled since 2006, and the share of mortgage holders carrying that debt has increased by 44% over that 9-year span.
Here are some of the key findings:
- Black Knight found that U.S. mortgage holders are carrying the most non-mortgage debt they have - an average of approximately $25,000 each - in over 10 years
- Student loan debt among mortgage holders is at an all time high
- Among mortgage holders, student loan debt has increased by roughly 56% since 2006, to an average balance of nearly $35,000
- The share of borrowers carrying student loan debt has increased by 44% in that same time span
- 48% of mortgage holders have automobile debt as well
- Auto debt accounted for 81% of the increase in overall non-mortgage debt among mortgage holders over the past 4 years
- Nearly 15% of those with homes in the lowest 20% of values are still underwater, compared to just 1.7% of those in the top 20%
- Some 5.7 million borrowers lack enough equity in their homes to cover the cost to sell them
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Yawn.......so what's the problem?
Signed,
Debtor Nation
I know, all those debts, are someone else's (rehypothecated) ASSETS!
Just let them take out more debt to cover their debt payments, it's what the government and banks do.
I need a machete to work my way through these green shoots.
i justed went to pick up my 11 yr old son who is taking a programming class for kids his age at a university in NJ. Damn! place looks like a 5 star hotel and resort with all the glass and marble... thats where the tuition is going. construction....expansion...higher salaries for a piece of paper thats most likely not worth much.
Funny, here I'm just waiting for someone to drop a lit match.
I don't understand the concern. Each individual/creditor is responsible for whatever debt they have. If they pay - fine. If they don't - hey, the onus is on them and their lender. Is it my concern or the concern of the government?
We agree,
Sincerely yours,
General Motors
Politicians get into power by promising prosperity, something which typically cannot be delivered by simply making laws. So they try the next best thing, creating artificial prosperity. This is why it is the government's concern; they don't want to admit that their scheme isn't working. Further, with the university system they are convinced they can mandate high wages into existence by punting students through college.
As to why the debt matters, remember money = resources. By taking $50k in taxes, eating $15 in adminstration, and loaning the remaining $35k to a student to attend unviersity, it means that a business owner cannot pay the same student $25k a year for two years to work a basic job that gets them basic skills to move further up. Or it may mean that marginal students who may not be suited for college get to go, because the universities want the free money (Many universities have gotten way bigger the last few years). Yes, I personally know a few students who genuinely benefitted, but more often than not the resources are misallocated.
So the reason it's your concern, and mine, is 1) because the government guaranteed the loans and we are on the hook ($1 trillion ~ $3,000 per American/~$6-7,000 per taxpayer), and 2) A large number of young people who would have gotten along fine working all sorts of jobs, are now unemployable Marxists after 4-10 years of brainwashing, who have lost the ability to figure out how to gain actual useful skills.
"Is it my concern or the concern of the government?"
The Democrats will forgive the trillions in debts in exchange for votes and taxpayers will get the bill. If you pay taxes, then you should be concerned.
Oh there's an easy fix for this. Just mint a .5 oz platinum coin and stamp $25 trillion on it.
Pay of the national debt, and take a cash advance of $7 trillion to keep partying!!!
Hookers and blow for all !
That's actually the right solution to the problem. We need sovereign, debt-free money; austerity and "lving within your means" is a self-defeating lie that only serves to ensure banker power and prime the pump for the next phase of borrowing out of thin air.
But debt is an asset, right? Debtors can is smply go to their nearest bank and ask for a loan using their debt as collateral, right?
"Sir, I'd like to borrow $100,000 against my student loan debt of $150,000, ok?"
"And, BTW, I have three car loans I'd like to borrow against also while you're at it."
Debt is the asset of the future! The moar debt you own, the wealthier you'll be!
It's paradoxical! It's Brilliant! I wish I had thought of it.
Cool! You're definitely Nobel Prize material.
I bet you went to Princeton...or at least walked across their campus, right?
It's a good thing wages are increasing so quickly.
seven year car loan. lulz. serf's up dude.
You mean, "Car Mortgage" right?
Car depreciation calculator for 7yr auto loan <their response>.
According to my calculations, if you purchase a new vehicle for $40,000.00 and keep the vehicle for 7 years, your total depreciation cost will be $34,800.00. That's an average annual cost of $4,971.43.
If you continue to purchase similar priced vehicles at similar intervals, over the course of the next 7 years your depreciation costs will add up to $34,800.00.
Had you been able to invest the $4,971.43 annual depreciation cost, your investment could have been worth $41,729.36 after 7 years.
And remember, this does not include all of the other costs of ownership that come attached to a vehicle purchase (finance charges, gas, insurance, licensing, maintenance & repairs, etc.)
http://www.free-online-calculator-use.com/car-depreciation-calculator.ht...
There was never homeownership in the United States. Mortaged homes are rented from the bank, paid for in debt-backed privatized currency created out of thin air by the banker. "Homeownership" is tantamount to debt slavery in this country.
And when you are finished paying the bank, you still have to pay the government, who will take it away if you do not pay the "rent."
I'm 44, had a reliable car since I was 16. Here's my car list:
73 Dart Swinger. $350 (sold $200 after 5years)
83 Nissan Sentra $750 (sold $400 after 4 yrs)
84 Buick Regal $1300 (sold $100 after 10 yrs)
99 Chevy Silverado $5500 (had 5 yrs)
02 Trailblazer $2000 (after truck trade/still driving 4 yrs)
01 Ford Windstar $2995 (2nd car bought last year/still driving)
$12,900 total over 28 yrs, all cash...no interst and little maintance. Just saying. My dad sold cars his whole life and said never buy new...let someone else lose all that money.
Apparently, debt is good. According to FICO, my credit score is dinged because I have no recurring debt payments. Ignore the fact that I have paid off every vehicle loan I've had and a mortgage. Those aren't recent enough, apparently. Only the negative shit stays on your report for what seems like forever.
You sound like a domestic terrorist, trucker, and you are now on a list. Take out moar debt or report to a FEMA camp for reeducation.
My 2000 BMW was paid off a year after I bought it. About 100K on it, runs like it did when it was new.
My 1994 Goldwing, and 1995 BMW R100GS, same story.
Think I'll use the Beemer for my coffin.
Fuck debt.
Burial in style. definitely beats sea burial.