WASHINGTON, Nov 14 (NNN-AGENCIES) — US households are now sitting on a record $14 trillion in mortgages, credit cards, student loans and other forms of debt.
Household debt ticked up 0.7% during the third quarter, the New York Federal Reserve said, continuing a five-year climb encouraged by low unemployment, strong consumer confidence and cheap borrowing costs.
Consumer debt is now about $1.3 trillion higher than the previous peak set in 2008, although these figures are not adjusted for inflation nor the larger size of today’s economy. Household debt has climbed about 25% from the post-recession low of $12.7 trillion.
Mortgages remains the largest chunk of Americans’ debt, accounting for $9.44 trillion. That’s up by $31 billion, or 0.3%, from the end of the second quarter, according to the NY Fed.
Student loans climbed by 1.4% to $1.5 trillion, while credit card balances rose $13 billion during the third quarter.
All of that borrowing, particularly credit cards and mortgages, support consumer spending — the biggest part of the US modern economy. But that debt will also become harder to repay during the next recession when unemployment rises.
Federal Reserve Chairman Jerome Powell warned Wednesday that business debt is “historically high,” but signaled he’s not particularly concerned about consumer borrowing.
“The ratio of household borrowing to income is low relative to its pre-crisis level and has been gradually declining in recent years,” Powell told lawmakers on Capitol Hill.
Still, the US economy is much larger than it was during previous decades, meaning it can likely handle a higher amount of debt.
The ratio of household debt-to-GDP stood at 76% during the second quarter, according to the St. Louis Federal Reserve. That’s well below the recent peak of nearly 100% in 2009.
The good news is that fewer Americans are filing for bankruptcy.
About 186,000 consumers had a bankruptcy notation added to their credit report during the third quarter, compared with 215,000 during the same period of 2018, the NY Fed said.
However, despite historically-low unemployment, the NY Fed said that delinquency rates worsened. About 4.8% of outstanding debt was delinquent at the end of the third quarter, up from 4.4% at the end of the second quarter. About $667 billion of debt is delinquent, including $424 billion that is seriously delinquent, a category that includes debt that is at least 90 days late.
Student debt continues to be a sore spot.
About 11% of the $1.5 trillion of US student debt was more than 90 days delinquent or in default, according to the NY Fed. That’s the most for any loan type and is nearly double 2004 levels, the earliest year the report covers.
Research shows that race may be playing a role.
Default rates in black-majority zip codes are double those in white-majority zip codes, NY Fed economists found. They said that these “repayment struggles” point to the importance of income differences across borrowers in different areas.
Credit card rates recently hit 17%, the highest level in at least 25 years, making this an especially costly form of borrowing. Part of that rise has been driven by fierce competition to lure borrowers with flashy rewards. — NNN-AGENCIES
