U.S. Household Debt And Composition

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by: Marc Chandler


Household debt has fallen by about $1 trillion since its peak.

Housing related debt accounts for a smaller share of household debt now.

Student and auto loans have picked up some of the slack.

This Great Graphic comes from New York Federal Reserve via a tweet from NickatFP. On a quarterly basis, going back to the start of 2003, to shows the dollar level as well as the composition of US household debt. The most striking observation is how little household debt has fallen from its peak. It peaked in the middle of 2008 near $12.6 trillion. At the end of Q2 14, it stood at $11.62 trillion. Indeed, household debt appears to have bottomed in Q2 13, and has increased marginally since.

Mortgage debt is off its peak, but it too has risen slightly from its trough. The decline in mortgage debt largely reflects foreclosures and the continued mortgage servicing by the vast majority of American home owners. Borrowing against home equity has eased and stands at about 4% of household debt, down from 6% in 2010. In 2010 housing related debt account for 80% of the household debt. As of the end of June, it accounted for 74%.

Borrowing for auto purchases has picked up some of the slack. It accounts for 8% of household debt, up from 6% in 2010. There has recently been more concern raised over sub-prime auto loans. The Federal Reserve and Treasury's success in helping to revive the US asset-backed securities market facilitated the recovery of auto purchases and auto production, with knock-on impact for other parts of the US economy.

Over the past four year, credit card debt has held constant at about 6% of American household debt. Since the overall debt is slightly smaller, so are the credit card balances. As we have noted, the expansion of American consumption has financed by income associated with increased employment more than an increase in revolving credit.

There has been a substantial increase in student loans. These now account for 10% of household debt in the US, up from 4% in 2010. It is difficult to renegotiate the terms (interest rates) of student loans It is also difficult to renege on the debt, unlike, say most mortgage debt, which is in the US of a non-recourse nature, and declaring bankruptcy to discharge the obligation is also considerably more difficult. This may become a more important issue ahead of the 2016 election cycle.

Many economists had expected a deeper reduction of household debt to pave the ground for a new cyclical expansion. The fact that the de-leveraging process looks to be complete means that the next cycle has begun with higher overall debt. This may be a factor preventing the US economy from gaining the so-called escape velocity. On the other hand, although just past the average duration of expansions (five years), the slower growth may extend the life of the expansion into 7-8 years.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.