U.S. household debt reaches record high

U.S. household debt reaches record high

U.S. household debt reaches record high

Student loans now have the worst delinquency rate among consumer credit categories.

Household debt has surpassed a peak set during the 2008 financial crisis, marking a long, gradual recovering in borrowing by American consumers, the New York Federal Reserve Bank reported on Wednesday (May 17). What stands out here is that it is about $50 billion above the previous peak reached back in the third quarter of 2008 - right before the recession kicked into overdrive. But the data show the current structure of debt is substantially different from 2008.

The shift has been particularly dramatic in the case of mortgages, which have become much harder to obtain for Americans with lower credit scores.

The record debt level itself "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, a research officer at the New York Fed.

Rising household debt - up from $12.58 trillion in the fourth quarter of a year ago - can indicate that Americans are confident in their jobs and the overall economy. More debt on one hand is a sure sign of optimism, but the reality is families use debt as a way to pay for things that their normal income can not support, added the economist. "People need credit to do the things they want to do - home improvement, start a business". Households shed more than $1.5 trillion in debt, most of it housing-related and partly through foreclosures. This marked a $149 billion (1.2%) quarterly increase and almost three years of continued growth since the long period of deleveraging following the Great Recession. Today, Americans are leveraged to about 80 percent of their financial worth, making it much more likely credit card debt and loans will be repaid. Auto loans and student loans grew by $10 billion and $34 billion, respectively. And credit card debt fell by $15 billion to $764 billion.

Still, there were some areas of concern. Of that total, $615 billion of debt listed as is delinquent, some $426 billion is listed as seriously delinquent - at least 90 days late or "severely derogatory". That has come along with a rise in auto- and student-loan debt as a percent of the average American's liabilities.

"Are we seeing the beginnings of the tea leaves of a broader problem?" he says.

At the same time the NY Fed reports that credit conditions tightened for obtaining auto loans and mortgages.

"Balances are increasingly shifting towards more creditworthy and older borrowers", New York Fed officials wrote in a blog post.

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