Fed: Household Debt and Credit Developments in 2017Q3 – A Sea of Red Ink

U.S. Households are drowning in in a sea of debt.

It is time for a reset…

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FEDERAL RESERVE BANK OF NEW YORK
RESEARCH AND STATISTICS GROUP
●MICROECONOMIC STUDIES
QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT
FRBNY Analysis Based on FRBNY Consumer Credit Panel / Equifax Data

Household Debt and Credit Developments in 2017Q3

Aggregate household debt balances increased in the third quarter of 2017, for the 13th consecutive quarter, and are now $280 billion higher than the previous (2008Q3) peak of $12.68 trillion.

As of September 30, 2017, total household indebtedness was $12.96 trillion, a $116 billion (0.9%) increase from the second quarter of 2017.  Overall household debt is now 16.2% above the 2013Q2 trough.

Mortgage balances, the largest component of household debt increased again during the third quarter. Mortgage balances shown on consumer credit reports on September 30 stood at $8.74 trillion, an increase of $52 billion from the second quarter of 2017.

Balances on home equity lines of credit (HELOC) have been slowly declining; they dropped by $4 billion and now stand at $4.48 billion.

Non-housing balances, which have been increasing steadily for nearly 6 years overall, saw a $68 billion increase in the third quarter.

Auto loans grew by $23 billion and credit card balances increased by $24 billion, while student loans saw a $13 billion increase.

New extensions of credit increased in the third quarter. Mortgage originations, which we measure as appearances of new mortgage balances on consumer credit reports and which include refinanced mortgages, were at $479 billion, up from $4.21 billion in the second quarter.

There were $150.6 billion in auto loan originations in the third quarter of 2017, a small increase from the high level seen in 2017Q2 and among the highest quarterly volumes seen in our data.

The aggregate credit card limit rose for the 19th consecutive quarter, with a 15% increase.

The distribution of the credit scores of newly originating borrowers shifted up slightly for both auto loans and mortgages. For auto loan originators, the median score increased to 705, as the higher level of auto loan originations in the third quarter was mainly due to growth in originations to prime borrowers; origination volume to borrowers with credit scores under 660 declined.

The median credit score to individuals originating new mortgages ticked up to 760, from 754.

Aggregate delinquency rates ticked up slightly in the third quarter of 2017.  As of September 30, 49% of outstanding debt was in some stage of delinquency. Of the $630 billion of debt that is delinquent, $408 billion is seriously delinquent (at least 90 days late or “severely derogatory”).

Flows into delinquency deteriorated for some types of debt. The flow into 90+ delinquent for credit card balances has been increasing notably for one year, and that measure for auto loans has increased, and the flow into 90+ delinquency for auto loan balances has been slowly increasing since 2012.

About 208,000 consumers had a bankruptcy notation added to their credit reports in 2017Q3, a slight improvement over the same quarter last year.

Housing Debt.

  • There was $479 billion in newly originated mortgage debt this quarter.
  • Mortgage delinquencies continued to improve, with 1.4% of mortgage balances 90 or more days delinquent in 2017Q3.
  • Delinquency transition rates for current mortgage balances were unchanged, with 10% of current balances transitioning to delinquency.

There was a deterioration in the transition rate of mortgages in early delinquency, of which 16.2% transitioned to 90+ days delinquent, compared to 12.8% in the previous quarter.

  • About 70,000 individuals had a new foreclosure notation added to their credit reports between July 1 and September 30, a new historical low.

Student Loans, Credit Cards, and Auto Loans

  • Outstanding student loan debt grew, and stood at $136 trillion as of September 30, 2017.
  • 11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017Q3, unchanged since the previous quarter.
  • Auto loan balances increased by $23 billion, continuing their 6-year trend. Auto loan delinquency rates increased slightly, with 4.0% of auto loan balances 90 or more days delinquent on September 30.
  • Credit card balances increased by $24 billion.

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