US Household Debt Surpasses 2008 High, Hits Record $12.7 Trillion

Tyler Durden's picture

Total debt held by US household reached $12.73 trillion in the first quarter of 2017, finally surpassing its $12.68 trillion peak reached during the recession in 2008 according to the NY Fed's latest quarterly report on household debt. This marked a$479 billion increase from a year ago, and up $149 billion from Q4 2016 after 11 consecutive quarters of growth since the deleveraging period immediately following the Great Recession.

the quick and durty breakdown:

  • Total household indebtedness stood at $12.73 trillion as of March 31, 2017. This increase put overall household debt $50 billion above its previous peak set in the third quarter of 2008 and 14.1 percent above the trough set in the second quarter of 2013.
  • Mortgage balances, the largest component of household debt, reached $8.63 trillion as of March 31, a $147 billion uptick from the fourth quarter of 2016.
  • Balances on home equity lines of credit fell slightly in the first quarter, down $17 billion to $456 billion.
  • Non-housing debt saw mixed changes—an increase of $10 billion in auto loans and $34 billion in student loan balances, and a $15 billion drop in credit card balances.

Despite the new nominal all time high, on a relative basis, household debt remained below past levels in relation to the size of the overall U.S. economy, and in Q1 total debt was 66.9% of GDP, nearly 20% lower compared to 85.4% of GDP in Q3 of 2008.

Immediately following the 2009-2009 crisis, Americans reduced their debts to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. New York Fed researchers, cited by the WSJ, described the drop as “an aberration from what had been a 63-year upward trend reflecting the depth, duration and aftermath of the Great Recession.”

Compared to 2008, balance sheets also look different now, with less housing-related debt and more, make that much, much more student and auto loans. As of the first quarter, 67.8% of total household debt was in the form of mortgages; in the third quarter of 2008, mortgages were 73.3% of total debt. Student loans rose from 4.8% to 10.6% of total indebtedness, and auto loans went from 6.4% to 9.2%.

“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 New York Fed.

“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.”

Overall credit rose at a brisk pace, led by $147 billion in  mortgage originations, $34 billion in student loans and $10 billion in auto loan increase, the overall pace of new lending slowed from the strong fourth quarter. Mortgage balances rose 1.7% last quarter from the final three months of 2016, while home-equity lines of credit were down 3.6% in the first quarter. Automotive loans rose 0.9% and student loans climbed 2.6%. Credit-card debt fell 1.9%, and other types of debt were down 2.7% from the fourth quarter.

Further details from the report:

Housing Debt

  • Mortgage balances increased again while originations declined and median credit scores of borrowers for new mortgages increased, reflecting tightening underwriting. There was $491 billion in newly originated mortgages this quarter.
  • Mortgage delinquencies worsened slightly, with 1.7% of mortgage balances 90 or more days delinquent in 2017Q1. About 91,000 individuals had a new foreclosure notation added to their credit reports between January 1 and March 31st, an increase since 2016Q4, although foreclosures remain low by historical standards

We were surprised by the NY Fed's optimistic read on mortgage originations which declined only modestly according to Equifax numbers...

... whereas the biggest US mortgage lender - Wells Fargo - recently reported a historic collapse in new mortgage applications, which lead originations, in the first quarter.



Non-Housing Debt

  • Auto loan balances increased by $10 billion Q/Q and $96 billion Y/Y, continuing their 6-year trend. Auto loan delinquency rates were flat, with 3.8% of auto loan balances 90 or more days delinquent on March 31.
  • Credit card balances declined by $15 billion Q/Q but increased by $52 billion Y/Y to $764 billion, while 90+ day delinquency rates deteriorated, and now stand at 7.5%.
  • Outstanding student loan balances increased by $34 billion Q/Q and $83 billion Y/Y, and stood at $1.34 trillion as of March 31, 2017, marking an increase in every year throughout the 18-year history of this series.

Confirming the broader transition to renter-housing, mortgage lending to subprime borrowers has collapsed since the housing crisis (both due to a reduction in demand and supply) in favor of loans to more crerdit-worthy borrowers. According to the detailed NY Fed report, in Q1, borrowers with credit scores under 620 accounted for 3.6% of mortgage originations, compared with 15.2% a decade earlier. The inversion at the top was also notable, as borrowers with credit scores of 760 or higher were 60.9% of originations last quarter, versus 23.9% in the first quarter of 2007.

Unlike houseing, howevern subprime auto loans have remained abundant, helping fuel the record vehicle sales of recent years as interest rates have been low. Some 19.6% of auto-loan originations last quarter went to borrowers with credit scores below 620, down from 29.6% a decade earlier according to the WSJ. The median credit score for auto-loan originations in the first quarter was 706, compared with 764 for mortgage originations.

A closer look at household bankruptcies & delinquencies in a time of near record low interest rates reveals the following:

  • Aggregate delinquency rates were roughly flat.
  • Bankruptcy notations reached another low the 18-year history of this series.
  • 7.5% of all credit card debt was seriously delinquent in Q1 2017
  • 11% of all student debt was seriously delinquent in Q1 2017
  • 3.8% of all auto loan debt was seriously delinquent in Q1 2017

Additionally, 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.

The aggregate default rate in Q1 was 4.8%, or roughly unchanged with some variation across product types. As of March 31, 4.8% of outstanding debt was in some stage of delinquency. Of the $615 billion of debt that is delinquent, $426 billion is seriously delinquent (at least 90 days late or “severely derogatory”). The percent of student loan balances that transition to serious delinquency has remained high, hovering around 10 % at an annual rate over the past five years.

* * *

Perhaps the most troubling update in the Q1 credit update was that the number of credit inquiries within the past six months – an indicator of consumer credit demand – declined from the previous quarter, to 162 million. This confirms what the NY Fed reported in its latest Senior Loan Officers Survey which found an unexpected collapse in both credit and auto loan demand.

It also helps explain the recent crash in both C&I and total loan issuance.

Declining household loan growth demand is typically an indication of a contracting economy. It is likely to deteriorate further as a result of rising interest rates, as the Fed continues to hike rates, which will lead to further pressure on loan demand, and result in an even greater slowdown for the economy.

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Silver Savior's picture

Why? The banksters offer fresh currency from thin air to allow you to pay for it on credit so they can keep their Ponzi scheme going. 

aliens is here's picture

I owe a lot of money to banks. :(

Silver Savior's picture

I stopped paying on mine a few years ago. It's called a hard reset.  Seven years if this shitshow keeps going I will get platinum cards again. lol kind of like a business cycle. I don't expect there to be credit in 7 years the way things are going though.

roadhazard's picture

Life's a lot cheaper back here in the woods... and nicer looking too. Don't be a, "Jones" follower.

Silver Savior's picture

If I could get a high limit card I would be in so much trouble right now. 

rejected's picture

Wonder if these debt morons realize they're creating as much or maybe more fiat out of thin air then the FRB?

The banks and financial institutions have no money,,, they create the currency to loan to the gullibles in exchange for a contract. 

It would be the same if I printed a twenty in my back room, then loan it to a mark somewhere. He pays it back with interest.  I make money without ever investing real capital. Of course I would be jailed for doing such a crime.

The banks and financials however are revered and respected for committing this crime.  Next time you sign on the dotted line, look at the banker smile. He knows what an idiot you are and that smile is really a smirk.

hendrik1730's picture

Don't get nervous about all this. The average Joe Sixpack is to stupid to understand it. Stupidity is being abused all the time and stupidity is something one can not fight against. I tried hard - and failed. "They" just don't believe you. So, go your own way and let the others rot in their self created hell. Sarte knew about it a long time ago : ( quote ) : " l' Enfer, c'est les autres " - end quote. Translation : Hell is "the other ones". I rest my case.

Big Fat Bastard's picture

As the mortgage defaults ramp up.

squid's picture

So let's see.....

It's all caused by;

Student loans (the feds),

Auto loans (all sub prime....we never learn),

Mortagaes(here we go again).


It is gratifying to see that most Americans are holding their CC debt in check.


So, buckle up it seems.