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.

Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

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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  • Cowpoke

    So continued de-leveraging in America (8% unemployment), Europe in the crapper, Chinese Slowdown, Canucks and Aussies in serious Housing bubble/bursting trouble and us equities continue to plow ahead.
    Makes no sense to me what am I missing?

  • Geoff

    The Wall of Worry

  • Cowpoke

    Thanks Geoff (Proper Spelling for the name Jeff), I mean A few years ago when China saw the bump in the road, the US markets fellback around 8% and last years as well I think as all coupled with China or Europe concerns.
    Now all of a sudden there is no coupling what so ever.

    Is there really computers that are coupled to news events and trade on them? Or is there a grand OZ that does it?
    I am so confused I feel at times I have fallen down the proverbial rabbit hole.

  • Anonymous

    Raise the corporate tax rate….. both management and employers have less incentive to maximize net income by cutting cost in the form of wages. Pay your employees vs. paying Uncle Sam.


  • Cowpoke

    “Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. ”

    Anonymous, from that paper you cited, what entity in society is that pertaining to, Private Sector, State/Local Public sector or public Sector with sole authority over the currency?

  • InvestorX

    Consumer credit is still rising though, primarily due to the student loans / education bubble. The latter will end badly, that is clear now.

  • Geoff

    Hey Cowpoke, I’m not sure about the computers. All I know is that when the market stops reacting to negative news, it is normally a pretty bullish sign. Anecdotally, the biggest fear I hear is about the US govt debt situation. The current media focus on the Fiscal Cliff has certainly not helped there. But, of course, we know that the concerns about US govt debt are completely unjustified. The US is not going bankrupt. That certainly raises my level of optimism!

  • Cowpoke

    Geoff, funny thing Z.H. just posted on this topic:
    Boehner Arouses Market As Reid Beatdown Forgotten


    I know ZH preaches about HFT and Algos alot, but there does seem to be a coralation between what ever events they are tied to (Fiscal Cliff Talk, Greece Talk, Austerity, China GDP decline etc,etc..)

  • Geoff

    I’m sure Cullen loves to see links to ZH here :) but thanks anyway! It is hard to argue with those charts. In particular, the Big Boehner seems to generate a HUGE “rise” in the market. Perhaps his new nickname should be the Blue Pill.

  • Hans

    When is the is the Fed going to de-leverage?

  • Cowpoke

    Hans, That be called “Unwinding”, and it will be interesting.

    Here is a post from ZH a few months ago on it and it is a topic I hope the Prag Cap Family starts to ponder and debate over the next year because it is another large piece of our economic puzzles uncharted waters.
    The Fed’s Balance At The End Of 2013: $4 Trillion: