Household debt rose by $226 billion to $12.58 trillion in the fourth quarter 2018, the highest quarterly increase since the fourth quarter 2013. It now sits just below its peak of $12.68 trillion in the third quarter 2008, according to the latest Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York.

In fact, every type of debt posted a quarter-over-quarter increase, with mortgage balances rising by $130 billion, auto loan balances by $22 billion, credit card balances by $32 billion, and student loan balances by $31 billion. The boost in balances was due, in part, to stronger new extensions of credit.

"Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt," said Wilbert van der Klaauw, senior vice president at the New York Fed. "Since reaching a trough in mid-2013, the rebound in household debt has been led by student debt and auto debt, with only sluggish growth in mortgage debt."

On a year-over-year basis, auto loan balances increased by $93 billion to $1.16 trillion in the fourth quarter, according to the report. Much of that increase was driven by originations, with auto loan originations growing to $142 billion in the fourth quarter — making 2016 the highest auto loan origination year in the 18-year history of the data. The median score for originating borrowers during the fourth quarter ticked up to 700.

“The origination volume for auto loans do reflect a slight tightening, with 32% of dollars originated to borrower with credit scores of over 760 in the fourth quarter, compared to only 29% for the first three quarters of 2016,” the report states, in part.

The report also showed further deterioration of delinquency rates, with 3.8% of auto loan balances 90 or more days delinquent on Dec. 31, 2016 — a 0.2% increase from the previous quarter.

As previously noted, the composition of debt is changed  since 2008, when mortgage and HELOC (home equity lines of credit) debt made up 79% of household liability — a figure that was fueled by the rapid growth in house prices during the boom, according to a blog the New York Fed issued in conjunction with its report.

In this recovery, the rebound in debt has been driven by student and auto debt, rather than house debt. Currently, housing-secured debt makes up just 71% of total household liabilities, a level even lower than the 74% observed in 2003, when housing boom was under way.

“So while 2016 is similar to earlier years in terms of level of debt outstanding, there have been shifts in the way American households borrow,” reads the New York Fed’s blog, in part. “Important questions remain about these trends will play out as the recovery continues. We, of course, will continue to monitor and report on the new developments.”

This story was originally published on F&I and Showroom, a sister publicatoin of Vehicle Remarketing. 

0 Comments