US households owe record amount, topping pre-recession peak

Household Debt Tops 2008 Peak

It took 9 years, but household debt finally surpassed the 2008 peak, according to the New York Fed's just-released report on first quarter household debt and credit (pdf).

The expanding debt level is an indication that numerous Americans that struggled during the Great Recession have repaired their individual credit sufficiently to qualify for new loans.

Banks including Fifth Third Bank Corp. have been trimming their loan books and cutting back on riskier credit as delinquent auto loan balances surge. For one, mortgage and credit card debt is lower than it was before the recession, with the difference being made up by an increase in student loan and auto debt, CBS News reports. Mortgage balances rose 1.7% last quarter from the final three months of 2016, while home-equity lines of credit were down 3.6% in the first quarter.

"This record debt level is neither a reason to celebrate nor a cause for alarm", said Donghoon Lee, research officer at the New York Fed.

On the whole, a record low of 203,000 consumers saw a bankruptcy notation added to their credit reports during the period, a 1.7% decline from the year prior. When the housing market crashed, leading to the Great Recession and the 2008 financial crisis, total debt fell off dramatically. Particularly so, as the Federal Reserve is normalising the USA monetary conditions with borrowing costs going up, the issuance of the debt and refinancing of existing loans is now more expensive, and the downside risks of the monetary policy are increasingly prominent in the projected dynamics of the broader GDP expansion. Auto loan balances continued to rise, by $10 billion to $34 billion.

Ally Financial Inc., which Bloomberg Intelligence estimates has 55 percent of its loan book in auto credit, is one lender trying to distance itself from the weaker borrowers. Prior to the recession, the average US household was leveraged to 100 percent of its worth, meaning most people owed as much money as they had. Almost 11 percent of that debt is 90 days overdue or more.

The shift has been particularly dramatic in the case of mortgages, which have become much harder to obtain for Americans with lower credit scores.

But graduation rates haven't increased much over the past decade, U.S. Department of Education figures show, leaving millions of Americans with debt and without the means to repay it. Total mortgage debt as of Q1 2017 was $8.63 trillion. Credit card transitions have also ticked up.

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