US Household Debt Drops to Lowest Level Since 2006

Andrew Klips  |

The Federal Reserve Bank of New York said on Tuesday that households in the nation lowered their debt by 1.0 percent, or $110 billion, in the first quarter compared to the fourth quarter of 2012. The $11.23 trillion total now outstanding as of March 31 represents the lowest level since mid-2006. The Fed attributed the reduction in debt load to lower credit card balances and smaller amounts of housing-related debt.

Total mortgage debt dropped to $7.93 trillion from $8.03 trillion and credit card balances were reduced to $660 billion from $679 billion in the prior quarter.

The quarterly “Household Debt and Credit Report” from the central bank provides a snapshot of household trends in borrowing and indebtedness. It is generated through analysis of data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymous Equifax (EFX) credit data. Housing debt makes up the vast majority of the figure. In the latest quarter, housing debt was $8.48 trillion and non-housing debt was $2.75 trillion.

Total household debt has been tapering since a peak burden at $12.68 trillion in the third quarter of 2008. The only quarter-over-quarter increases since that time happened in the first quarter of 2011 compared to Q4 2010 (from $11.71 trillion to $11.76 trillion) and from the third to the fourth quarter in 2012 (from $11.31 trillion to $11.35 trillion).

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“After a temporary deceleration in the previous quarter, the data suggest that household deleveraging has resumed its previous trajectory,” said Wilbert van der Klaauw, senior vice president and economist at the New York Fed.

In comparison to the first quarter of 2004, total household debt was higher by $2.94 trillion.

Delinquency rates on household debt declined from 8.6 percent in the final quarter of 2012 to 8.1 percent in Q1. Delinquency rates were lower in all categories, including mortgages, which dropped from 5.6 percent to 5.4 percent, and home equity loans, which slid lower by 0.3 percent to 3.2 percent.

Seriously delinquent rates, or those payments more than 90 days late, improved from 6.3 percent to 6.0 percent. This is far better than the 8.7 percent rate at a peak three years ago.

Another bright note of the report was the pace at which 30 – 60 day delinquent mortgages were brought current. Almost 35 percent of those late payments were brought current in the latest quarter, versus on 28 percent in Q4 2012.

Student loan debt, which is the biggest form of consumer debt excluding mortgages, rose to a record $986 billion in the first quarter, compared to $966 billion in the final quarter of last year. The total dollar figure of student loans has swelled more than 45 percent since the end of the recession. Some economists are becoming concerned about the ever-increasing debt burden of student loans that resembles the mortgage bubble that lead to (or at least deeply contributed to) the start of the financial collapse a few years ago.

The markets are continuing their roll on Tuesday amid the news. The Dow has printed another all-time high and is ahead by 90 points while the S&P 500 has also set a new record and is up 13 points. Not to be left out, the tech-heavy Nasdaq is up by 17 points, trading at its highest point since November 6, 2000.

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