Thursday, May 31, 2012

Total Household Debt is Still Way Above 2003 Levels (NY Fed Report)

Source: NY Fed
The New York Fed released its quarterly report on household debt and credit ending on March 31, 2012, and it looks like households have been deleveraging since the credit bubble burst, but total household debt is still 58.8% above 2003 levels. It looks like student loans are picking up the slack, which makes sense given that jobs were destroyed during the financial crisis (still at 8.1% unemployment). But, there still needs to be a return on investment (1, 2).

Total household debt ended Q1 2012 at $11.44 trillion, up 58.8% from $7.2 trillion in Q1 2003, and student loan debt ended Q1 2012 at $904 billion, up 275% from $241 billion in Q1 2003. So, are U.S. households done deleveraging? Or is this just the beginning? Here's another factoid from the report:

"Since the peak in household debt in 2008Q3, student loan debt has increased by $293 billion, while other forms of debt fell a combined $1.53 trillion."

Student loan debt was 8% of total consumer debt at the end of the quarter. The report shows loan delinquency trends as well, and of course the main focus now is on student debt. The New York Fed and Consumer Financial Protection Bureau has already warned that student loan delinquencies are rising with the total loan balance. Although student debt remains a small piece of the pie, the question going forward is whether public and private student debt poses a risk to banks, the economy, and the U.S. government.

I included an interactive chart of total consumer debt after the jump.




Here's the intro of the New York Fed's report:

"Household Debt and Credit Developments in 1Q 2012

Aggregate consumer debt fell slightly in the first quarter. As of March 31, 2012, total consumer indebtedness was $11.44 trillion, a reduction of $100 billion (0.9%) from its December 31, 2011 level.

Here are some other developments in household debt and credit from the quarter:

Mortgage balances shown on consumer credit reports fell again ($81 billion or 1.0%) during the quarter; home equity lines of credit (HELOC) balances fell by $15 billion (2.4%). Household mortgage and HELOC indebtedness are now 11.9% and 14.3%, respectively, below their peaks. Consumer indebtedness excluding mortgage and HELOC balances stood at $2.64 trillion at the close of the quarter. Student loan indebtedness, the largest component of household debt other than mortgages, rose 3.4% in the quarter, to $904 billion."

Of course, there's a debate on whether the total household debt balance even matters. I found an IMF report with a chapter on dealing with household debt after the great recession. This chart shows the trend of shadow inventory, household debt/disposable income, house prices, and the number of properties in foreclosure.

Source: IMF

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