Rise in Household Debt Hints at End of Deleveraging

by 07 Mar 2013

Housing Mortgage Professional America

(Reuters) - Household debt grew at its fastest pace since early 2008 in the fourth quarter of last year, a possible sign that the painful process of paring back borrowing in the aftermath of the financial crisis may have run its course.

Household debt rose at a 2.5 percent annual rate in the fourth quarter, the Federal Reserve said on Thursday in its quarterly Flow of Funds report. It was the steepest gain since the first quarter of 2008 and only the third quarter since then in which debt levels rose.

The data showed that the net worth of American households grew solidly during the fourth quarter of 2012, rising $1.1 trillion to $66.0 trillion, another hopeful sign for future U.S. consumer spending.

The United States is slowly recovering from a severe recession sparked by the crisis. Growth remains tepid and unemployment in January was a lofty 7.9 percent, but the Fed has taken aggressive steps to spur spending, investment and hiring.

Home mortgage debt shrank by 0.75 percent in the fourth quarter, while consumer debt rose at an annualized 6.5 percent pace, evidence of growing confidence among households.

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