U.S. household debt surpasses 2008 levels: NY Fed

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Kristian Rouz - US student loans, having boomed in the past 8 years, surged to their all-time highest at an aggregated $1.3 trln, representing roughly 11 percent of total outstanding household debt in the US, with over 7 mln borrowers unable to serve their obligations. Ford said Wednesday it's cutting 1,400 jobs in North America and Asia to improve profits as the USA auto industry recorded a fourth straight drop in monthly sales in April, after eking out a record year in 2016.

Just 203,000 Americans declared bankruptcy in the first three months of this year, the lowest in the 18 years that the New York Fed has tracked the data.

Even with debt levels back to record heights, analysts note that household borrowing appears more sustainable now than it did almost a decade ago.

Outstanding household debt increased by a 1.2 percent in the first quarter, rising by $149 billion to a new record level of $12.73 trillion, the Federal Reserve Bank of NY said yesterday.

Higher debt levels can be a positive indicator for the economy. Automotive loans rose 0.9% and student loans climbed 2.6%. Credit card balances are also lower than nine years ago, the Fed said.

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In the first quarter, student loans accounted for 10.6 percent of household debt, more than double the 2008 figure.

Additionally, other types of debt saw similar increases in Q1 2017, notably student loan debt, which grew by $34 billion in Q1, totaling $1.34 trillion. As of the first quarter, 67.8% of total household debt was in the form of mortgages; in the third quarter of 2008, mortgages were 73.3% of total debt.

Mortgage lending to subprime borrowers has dwindled since the housing crisis in favor of loans to consumers considered more likely to repay. This is a $149 billion quarterly increase. Now, given the increased rates of overall household indebtedness, with monthly auto loan payments and mortgage or rent, as well as credit cards, the optimistic developments in the labour market do not seem to help.

Student loans are also a potential trouble spot: They topped $1.3 trillion in the first quarter, soaring by 120 percent since 2008. Some 19.6% of auto-loan originations last quarter went to borrowers with credit scores below 620, down from 29.6% a decade earlier.

Auto loan balances continued their steady rise seen since 2011 while auto loan originations declined and median credit scores of borrowers for these new loans increased. Foreclosure rates remain low by historical standards, according to the data, but 91,000 individuals had a foreclosure notation added to their credit reports while mortgage delinquencies worsened, though transition rates (which measure balances that have newly become at least 30-days late divided by balances current in the previous quarter) were unchanged.

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