We owe more than we did in ’ 08

House­hold debt tops mile­stone — but it’s ‘ a good thing,’ ex­pert says

USA TODAY International Edition - - MONEY - Paul David­son

U. S. house­hold debt has topped the record level reached in 2008, a mile­stone for the re­cov­ery that shows con­sumers are bor­row­ing again.

But while the debt doesn’t pose the risks that top­pled the fi­nan­cial sys­tem nine years ago, there are still some signs of po­ten­tial trou­ble, no­tably high stu­dent loan debt and delin­quen­cies.

Debt bal­ances for Amer­i­can house­holds in­creased $ 149 bil­lion, or 1.2%, in the first quar­ter to $ 12.73 tril­lion, the Fed­eral Re­serve Bank of New York said Wed­nes­day. That’s mod­estly above the $ 12.68 tril­lion peak in 2008 and 14.1% higher than the bot­tom in 2013.

But the makeup of that debt is starkly dif­fer­ent from what it was at the brink of the 2008 fi­nan­cial cri­sis. While mort­gages still com­prise the ma­jor­ity of the obli­ga­tions, they rep­re­sent a far lower share, and the re­bound has been led by stu­dent and auto debt.

“The debt and its bor­row­ers look quite dif­fer­ent to­day,” said Donghoon Lee, the New York Fed’s re­search of­fi­cer.

Also, house­hold debt rep­re­sented nearly 100% of house­hold in­come in 2008, com­pared with 80% to­day, pre­sent­ing a far lower risk to in­di­vid­ual sol­vency and the broader econ­omy, said Mark Zandi, chief economist of Moody’s An­a­lyt­ics.

The lat­est mile­stone is “a good thing,” Zandi said. “Peo­ple need credit to do the things they want to do — home im­prove­ment, start a busi­ness. You want credit to flow freely but con­sis­tent with peo­ple’s abil­ity to re­pay.”

In the mid- 2000s, len­ders too easily doled out all types of loans, but par­tic­u­larly mort­gages, fu­el­ing hous­ing and credit bub­bles that ul­ti­mately col­lapsed. House­holds shed more than $ 1.5 tril­lion in debt, most of it hous­ing- re­lated and partly through fore­clo­sures.

In the first quar­ter, out­stand­ing mort­gage debt in­creased $ 147 bil­lion as mort­gage orig­i­na­tions grew by $ 491 bil­lion. By com­par­i­son, quar­terly mort­gage orig­i­na­tions were av­er­ag­ing about $ 650 bil­lion dur­ing the hous­ing bub­ble be­fore plung­ing to less than $ 300 bil­lion four years ago.

Stu­dent loan debt rose by $ 34 bil­lion to $ 1.34 tril­lion and was up from about $ 500 bil­lion in 2007, trail­ing only mort­gages.

Many Amer­i­cans stayed in school longer or re­turned to col­lege to beef up their skills when jobs were scarce in the re­ces­sion.

Auto loan debt in­creased by $ 10 bil­lion to $ 1.17 tril­lion and has climbed steadily since the down­turn amid low in­ter­est rates and dealer in­cen­tives. And credit card debt fell by $ 15 bil­lion to $ 764 bil­lion.

To­tal delin­quency was flat last quar­ter at 4.8%, the low­est level since be­fore the re­ces­sion.

MICHAEL DWYER, AP

Mort­gages make up a lower share of house­hold debt than they did in 2008.

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