US households owe record amount, topping pre-recession peak

Household Debt Tops 2008 Peak

Total debt totaled $12.73 trillion as of March 31, 1.2% higher than the fourth quarter of 2016 and 14% higher than the trough in the second quarter of 2013, following the financial crisis and recession.

On its own, high levels of debt can signal trouble for an individual's finances, but on a broader scale it shows banks are confident customers will be able to repay loans for new homes, cars, their education and starting new businesses.

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Debt balances for American households increased $149 billion, or 1.2%, in the first quarter to $12.73 trillion, the Federal Reserve Bank of NY said Wednesday.

Yet while the survey painted a rosy picture of delinquency rates generally heading lower, especially on mortgages and credit cards, the trend among student loans deteriorated from 2004 to 2014 "and has remained stubbornly high since then", New York Fed economists wrote in a blog. That is slightly more than the $12.68 trillion peak in 2008. New York Fed officials note that the figures are nominal, so don't take into account inflation. By comparison, quarterly mortgage originations were averaging about $650 billion during the housing bubble before plunging to less than $300 billion four years ago. Auto loans balances, which have been increasing for six years, swelled by $10 billion to $1.17 trillion. And credit card debt fell by $15 billion to $764 billion. Of that total, $615 billion of debt listed as is delinquent, some $426 billion is listed as seriously delinquent - at least 90 days late or "severely derogatory".

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It was shown that early delinquency flows have improved since the recession, but there has been a slow deterioration in auto loan performance and a more recent uptick in early delinquency rates on credit card debt.

In the first quarter, outstanding mortgage debt increased $147 billion as mortgage originations grew by $491 billion. According to the report, the percentage of student loan balances that transition to "serious delinquency", which had been in decline, has hovered around an annual rate of 10% for the last five years. Consumer credit levels should be expected to grow in an expanding economy.

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But there are some key differences in the type of debt and who is borrowing compared to the Great Recession.

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