US household debt surpasses pre-crisis peak

Household debt in the US has hit a record high, for the first time passing the peak from which it tumbled in 2008 as the global financial crisis took hold.

Total household indebtedness rose 1.2% in the first quarter of 2017 to hit $12.73 trillion, surpassing its Q3 2008 peak of $12.68 trillion, according to figures published by the Federal Reserve Bank of New York (figure 1).

The largest chunk of the debt remains in mortgages, though auto loans and student debt have shown marked rises in recent years, growing 0.8% and 2.5%, respectively, over the quarter. Credit card debt has also been on a medium-term upward path, though it declined by $15 billion in Q1.

Despite the high level of debt, delinquency rates have dropped off since their peak of 11.9% in Q4 2009, and are now broadly flat.

The US economy’s recovery in recent years has left households in a stronger position to manage their debts. Data from the St Louis Fed shows debt service payments as a share of household income have declined sharply since the crisis, and are now flat at around 10% (figure 2).

Similarly, household debt as a share of GDP has come down sharply since the crisis, and now shows signs of flattening out (figure 3). Government debt has been the mirror image of household debt, rising strongly during the crisis and lately moderating at around 105% of GDP.

The New York Fed data does show some indications of potential trouble brewing, though. Student loan “serious delinquency” rates, defined as 90 days or more, are particularly high, at over 10%, though they have been broadly flat for the past few years. Delinquency rates for auto loans have been on a gradual upward path but still remain low, while credit card debt has also seen an uptick over the past year.

New York Fed chief William Dudley has noted patterns of debt among young people are shifting away from mortgages and towards student debts. In remarks in April, he said the Fed’s research suggests that those with high levels of education are more likely to own houses, but those with large debts are less likely. “Thus, changes in the way we finance post-secondary education could also have important implications for the distribution of wealth,” he said.