NY Fed: Household De-leveraging Continued in Q3

The NY Fed is out with their quarterly report on household debt trends and there’s not much new in this report.  In short, consumer debt trends are improving, but still consistent with a de-leveraging cycle.  The decline is primarily due to decreases in mortgage related debt and should reverse in the coming quarters as the housing market stabilizes further.  Here’s more from the NY Fed:

Aggregate consumer debt fell again in the third quarter, by $74 billion, continuing the nearly four-year downward trend in household debt. As of September 30, 2012, total consumer indebtedness was $11.31 trillion, 0.7% lower than its level in the second quarter of 2012 and down $1.37 trillion from the 2008Q3 peak.

Mortgages, the largest component of household debt, continue to drive the decline in overall indebtedness. Mortgage balances shown on consumer credit reports continued to drop, and now stand at $8.03 trillion, a 1.5% decrease from the level in 2012Q2. Home equity lines of credit (HELOC) balances dropped by $16 billion (2.7%). Non-mortgage household debt balances jumped by 2.3% in the third quarter to $2.7 trillion, boosted by increases of $18 billion in auto loans, $42 billion in student loans, and $2 billion in credit card balances.

…Other highlights from the report include:

  • Outstanding auto loans ($768 billion) are the highest in nearly four years.
  • Auto loan balances increased for the sixth consecutive quarter.
  • Mortgage debt at $8.03 trillion is at its lowest level since 2006.
  • Delinquency rates for mortgages decreased from 6.3 percent to 5.9 percent.
  • HELOC delinquency rates remain high by historical standards (4.9 percent).
  • New foreclosures are returning to their pre-crisis levels, as about 242,000 consumers had a new foreclosure added to their credit report, the lowest in nearly six years.
  • Mortgage originations, which we measure as the appearance of new mortgages on consumer credit reports, rose to $521 billion, the fourth consecutive quarterly increase.
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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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