US consumers rack up $12.7tn in debt
General arrears less of a problem than before crash but some students struggle
Household debt has surpassed its pre-crisis peak, exposing some categories of borrowers to strain as they try to meet obligations. Alerts were raised over student, credit card and car loans.
Household debt in the US surpassed its pre-crisis peak in the first quarter, exposing some categories of borrowers to financial strain as they try to keep up with their obligations.
Consumer debt balances totalled $12.73tn at the end of the first quarter of 2017, figures from the Federal Reserve Bank of New York showed, exceeding the 2008 peak of $12.68tn.
The share of debts falling into arrears is now markedly lower than in the lead-up to the recession across a range of types of lending, with mortgage borrowers’ finances proving particularly solid. An exception is student debt, where the percentage of loan balances going into “serious delinquency” has been hovering at around a 10 per cent annual rate over the past five years.
The latest figures also showed a jump in the share of credit card balances that are falling behind, as well as signs of trouble in motor loans, but in most areas the difficulties are less acute than during the credit boom and bust.
The US subprime mortgage crash has left a lasting legacy on the credit markets, with mortgage lenders in particular proving far more cautious about extending home loans to individuals with weaker credit records.
Only 3.5 per cent of home loans went into arrears in the first quarter, compared with annualised figures of at least 10 per cent from the third quarter of 2008 to the second quarter of 2010.
Just under $18bn of mortgages were extended to borrowers with weaker credit scores compared with nearly $115bn in the first quarter of 2007.
The absence of widespread loan defaults was attributed in part to a shift in lending towards older as well as more creditworthy borrowers, the New York Fed said.
About 203,000 consumers had a bankruptcy notation added to their credit reports in the first quarter, a 1.7 per cent drop from the same quarter last year and a record low.
“These shifts in borrowing patterns and characteristics of borrowers, paired with the long economic recovery and a strong labour market, have resulted in very low delinquency rates for most types of debts except for student loans,” New York Fed economists Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw said in a blog post.
Student debt has become a problem area for the US economy in recent years. Many Americans have borrowed heavily in the belief that continuing their education after high school is the best way to secure higher wages, but now find that the burdens outweigh the benefits.
Student loans surpassed credit cards in 2012 as having the worst delinquency rates in consumer credit. Outstanding student loan balances increased further in the first quarter, reaching $1.34tn.
Economists have also been raising concerns about the deteriorating performance of auto loans. Some 7.35 per cent of loans moved into arrears of at least 30 days in the first quarter, compared with just over 10 per cent in the worst days of the downturn. A year earlier the level was 7.27 per cent.