According to the just-released latest quarterly household debt and credit report by the NY Fed, Americans’ debt rose to a new record high in the fourth quarter on the back of an increase in virtually every form of debt: from mortgage, to auto, student and credit card debt (although HELOCs posted a tiny decline). With interest rates on household credit rapidly rising, and with no savings to fall back on, this is a recipe for disaster.
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Aggregate household debt increased for the 14th straight quarter, rising by $193 billion (1.5%) to a new all-time high, and as of December 31, 2017, total household indebtedness was $13.15 trillion, an increase of $572 billion from a year ago – the fifth consecutive year of increases – equivalent to 67% of US GDP, versus a high of around 87% in early 2009. After years of deleveraging in the wake of the 2007-09 recession, household debt has risen more than 18% since the trough hit in the spring of 2013.
Some more big picture trends:
- Mortgage balances, the largest component of household debt, increased by $139 billion during the quarter to $8.88 trillion from Q3 2017.
- Balances on home equity lines of credit (HELOC) have been slowly declining; they dropped by another $4 billion and now stand at $444 billion.
- Non-housing balances, which have been increasing steadily for nearly 6 years overall, saw a $58 billion increase in the fourth quarter.
- Auto loans grew by $8 billion to $1.22 trillion
- Credit card balances increased by $26 billion to $834 billion
- Student loans saw a $21 billion increase to $1.38 trillion
There were some red flags of caution:
- mortgage originations were at $452 billion, down from $479 billion in the third quarter confirming recent negative data from Wells Fargo, and suggesting that the housing recovery is stalling.
- There were $137 billion in auto loan originations in the fourth quarter of 2017, a small decline from 2017Q3 but making 2017 auto loan origination volume the highest year observed in our data.
- Meanwhile, credit card balances increased by $26 billion.
- Aggregate credit card limits rose for the 20th consecutive quarter, with a 1.0% increase.
The table below summarizes the key changes in household debt and credit developments as of Q4 2017
On the qualitative front, aggregate delinquency rates improved in the fourth quarter of 2017.
- As of December 31, 4.7% of outstanding debt was in some stage of delinquency. Of the $619 billion of debt that is delinquent, $406 billion is seriously delinquent (at least 90 days late or “severely derogatory”). The flow into 90+ days delinquency for credit card balances has been increasing notably from the last year and the flow into 90+ days delinquency for auto loan balances has been slowly increasing since 2012.
Unlike last quarter, when the New Your Fed explicitly warned that credit card and auto loan “flows into delinquency” increased, this time sequential flows showed improvement across all debt categories.
As discussed previously, Americans are increasingly layering all forms of household debt, with credit card, student and auto loan balances all at record highs.
- Perhaps this is driven by consumer confidence, which has been tracking at near a two-decade high as well as the all-time high in the stock market.
- The flip side, of course, is the collapse in the savings rate, which in January plunged to a near all-time low.
…With interest rates on household credit rapidly rising, and with no savings to fall back on, this is a recipe for disaster once the economic environment turns, and consumers retrench, only to find that their monthly interest payments are the highest in a decade. As confirmation, expect delinquency trends to turn sharply higher over the coming months as higher interest rates come home to roost.