Debt Composition and Performance Today Look Vastly Different; More Debt is Non-Housing Debt and Delinquencies Are Considerably Lower, Though Rising
The Federal Reserve Bank of New York has issued its Quarterly Report on Household Debt and Credit, which reported that total household debt reached $12.73 trillion in the first quarter of 2017 and finally surpassed its $12.68 trillion peak reached during the recession in 2008. This marked a $149 billion (1.2%) quarterly increase and nearly three years of continued growth since the long period of deleveraging following the Great Recession. Of note, the Report includes two new charts focused on transitions into early and serious delinquency, broken out by debt type.1 The Report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.
The New York Fed also issued an accompanying blog post, which uses the report’s new charts to assess how trends of transitions into delinquency have evolved. The blog post also explains that, although debt has reached record heights, this number is in nominal terms and it took an unusually long time from a historical perspective for debt to reach the 2008 level again.
“Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today. This record debt level 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, Research Officer at the New York Fed. “While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types. Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high."
The Report includes a one-page summary of key takeaways and their supporting data points. Overarching trends from the Report’s summary include:
Mortgage balances increased again while originations declined and median credit scores of borrowers for new mortgages increased, reflecting tightening underwriting.
Mortgage delinquencies worsened slightly and foreclosure notations increased but remained low by historical standards.
- Auto loan balances continued their steady rise seen since 2011 while auto loan originations declined and median credit scores of borrowers for these new loans increased.
- Credit card balances declined, delinquencies increased and the aggregate credit card limit increased for the 17th consecutive quarter.
- Student loan balances increased – marking an increase in every year throughout the 18-year history of this series.
Bankruptcies & Delinquencies Overall
- Aggregate delinquency rates were roughly flat.
- Bankruptcy notations reached another low the 18-year history of this series.
- This quarter saw a notable uptick in credit card debt transitioning into delinquencies, a continued upward trend of auto loans transitioning into serious delinquencies, and student loan transitions into serious delinquencies remaining high.
Household Debt and Credit Developments as of Q1 2017
90+ day delinquency rates (known as “seriously delinquent”)
With the addition of these new charts, the data underlying the charts “Quarterly Transition Rates into 30+ Days Late by State” and “Quarterly Transition Rates into 90+ Days Late by State” have been revised back to 1999.
Delinquency rates are computed as the proportion of the total outstanding debt balance that is at least 90 days past due.
As explained in a previous report, delinquency rates for student loans are likely to understate effective delinquency rates because about half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.