Household debt continues higher, mortgages reach $8.74 trillion

US household debt is continuing to increase and there are concerns over rising delinquencies in some credit products

Household debt continues higher, mortgages reach $8.74 trillion
US household debt is continuing to increase and there are concerns over rising delinquencies in some credit products.

A report from the New York Fed analyzes household finances from across the US and found that there was a 0.9% rise in household debt in the third quarter of 2017.

That means an extra $116 billion in household debt, taking the total to $12.96 trillion. Mortgages saw the smallest percentage increase (0.6%), outpaced by student debt (1%), auto loans (1.9%) and credit cards (3.1%).
Mortgage balances and originations increased and new mortgage borrowers’ median credit score was also higher. There was an extra $52 billion of mortgage debt in the third quarter, taking the total to $8.74 trillion.

Mortgage delinquencies (90+ days) slipped to 1.4% in the third quarter of 2017, compared to 1.7% at the start of the year and 8.9% in 2010.

“Mortgage debt is at a high but the ratio to home values is not as home price appreciation is outpacing new mortgage debt. Owner’s equity in real estate of 58.4% in Q2 was the highest since Q1 2006, when home price weakness began,” LendingTree’s Chief Economist Tendayi Kapfidze told Mortgage Professional America.

He added that HELOC balances continue to fall as homeowners are not accessing their record equity for consumption. In the third quarter there was a $4 billion decrease in HELOC balances to $448 billion.

While the mortgage sector is looking positive, Kapfidze warns there are potential challenges.

“This favorable picture is dependent on low rates, which may face some upward pressure but not to an extent we think will put borrowers under significant pressure. It is also dependent on strength in home prices which we expect to continue given tight housing inventory and a strong labor market,” he said.

Non-housing debt more worrying
Mortgages may be in good shape but the NY Fed’s report highlights rising delinquencies in the auto and credit card sectors.

“Delinquency flows across several debt types climbed this quarter, including for auto loans,” said Wilbert van der Klaauw, senior vice president at the New York Fed. “Examining the auto loan market more closely revealed notable differences between auto finance and auto bank lenders. Delinquency rates among auto finance lenders are considerably higher and rising, especially for subprime borrowers, in part reflecting differences in underwriting standards.”

This area of the credit market may be a concern, but LendingTree’s Kapfidze is positive overall.

“Although debt is at a new high, household debt servicing is not. The financial obligations ratio and household debt service ratios remain favorable because of income growth and low interest rates. In particular, the mortgage debt service ratio of 4.44% for Q2 2017 is the lowest since 1980,” he said.

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