The latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data showed a substantial increase in aggregate household debt balances in the fourth quarter of 2016 and for the year as a whole. As of December 31, 2016, total household debt stood at $12.58 trillion, an increase of $226 billion (or 1.8 percent) from the third quarter of 2016. Total household debt is now just 0.8 percent ($99 billion) below its third quarter 2008 peak of $12.68 trillion, and 12.8 percent above the second quarter 2013 trough. But debt looks very different in 2016 than it did the last time we saw this level of indebtedness.
For the year as a whole, household debt rose $460 billion, the strongest growth in nearly a decade, signaling continued improvement in credit conditions. Mortgage debt rose $231 billion (or 2.8 percent) during 2016, although balances on home equity lines of credit (HELOCs) fell slightly, by about $14 billion (or 2.9 percent) for the year. But HELOCs were the exception: every other form of debt rose during 2016, including auto debt (up $93 billion, or 8.7 percent), credit card debt (up $46 billion, or 6.3 percent), and student debt (up $78 billion, or 6.3 percent). HELOC debt leveled off in the second half of the year. Delinquency rates, meanwhile, held stable at relatively low levels in the fourth quarter, and were again down relative to 2015. As of December 31, 4.8 percent of outstanding debt was in some stage of delinquency. Of the $607 billion of delinquent debt, $412 billion was seriously delinquent (at least 90 days late, or “severely derogatory”).
At recent growth rates, household debt will re-attain its previous peak during 2017. But the liability side of household balance sheets looks quite different this time around, compared with the last peak seen in the third quarter of 2008. First of all, delinquencies are much lower. In the third quarter of 2008, 8.5 percent of total household debt was delinquent, compared with the current quarter’s 4.8 percent mentioned above; the serious delinquency rate was 5.1 percent, compared with today’s 3.3 percent. The delinquency trends are also quite different: delinquency rates continued to deteriorate significantly after the third quarter of 2008, with serious delinquency reaching 8.7 percent of outstanding balances in 2010. Today, delinquency has been relatively steady at low levels. Other measures of payment distress, like the rate at which mortgage debts transition into delinquency, are even lower relative to the pre-recession period.
The composition of debt has also changed over time. In 2008, mortgage and HELOC debt made up 79 percent of household liabilities, a figure that had been fueled by the rapid growth in house prices during the boom. Yet in this recovery, at least in the years leading up to 2016, the rebound in debt has been driven by student and auto debt, rather than housing debt. Now housing-secured debt makes up just 71 percent of total household liabilities, a level even lower than the 74 percent observed in 2003, as the housing boom was under way.
So while 2016 is similar to earlier years in terms of the level of debt outstanding, there have been shifts in the way American households borrow. Important questions remain about how these trends will play out as the recovery continues. We, of course, will continue to monitor and report on the new developments.
Disclaimer
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
Andrew F. Haughwout is a senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.
Donghoon Lee is an officer in the Research and Statistics Group.
Joelle Scally is the administrator of the Center for Microeconomic Data in the Bank’s Research and Statistics Group.
Wilbert van der Klaauw is a senior vice president in the Research and Statistics Group.
How to cite this blog post:
Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, “Just Released: Total Household Debt Nears 2008 Peak but Debt Picture Looks Much Different,” Federal Reserve Bank of New York Liberty Street Economics (blog), February 16, 2017, http://libertystreeteconomics.newyorkfed.org/2017/02/just-released-total-household-debt-nears-2008-peak-but-debt-picture-looks-much-different.html.
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Thanks for your comment. We actually did an analysis very similar to what you’re describing last year, in a post called “The Graying of American Debt” (http://libertystreeteconomics.newyorkfed.org/2016/02/the-graying-of-american-debt.html), where we discuss the shift in borrowing trends between 2003 and 2015 by age. You’ll see that the last two charts show the inflation-adjusted per capita debt in 2015 dollars across multiple age groups.
This is really good analysis. I would like to see it in per capita terms for 18 – 49 year old’s 2003,2009, 2016 to see if credit expansion has kept up with population growth. That is whether monetary and credit policy have kept pace with general population growth in an era of sensible regulation. 2006 – 2008 is irrelevant except as an evaluation of the effects of de-regulation,and lax enforcement.