Let’s dive into some stats and charts from the New York Fed Third-Quarter Report on Household Debt and Credit.
Key Points
- Aggregate household debt balances increased by $92 billion in the third quarter of 2019, a 0.7% increase, and now stand at 13.95 trillion.
- Balances have been steadily rising for five years and in aggregate are now $1.3 trillion higher, in nominal terms, than the previous peak (2008Q3) peak of $12.68 trillion. Overall household debt is now 25.1% above the 2013Q2 trough.
- Mortgage balances shown on consumer credit reports on September 30 stood at $9.44 trillion, a $31 billion increase from 2019Q2. Balances on home equity lines of credit (HELOC) have been declining since 2009, and this quarter’s decline of $3 billion brings the outstanding balance to $396 billion. Non-housing balances increased by 64 billion in the third quarter, with increases across the board, including $18 billion in auto loans, $13 billion in credit card balances, and $20 billion in student loans.
- New extensions of credit were strong for the third quarter. Auto loan originations, which include both newly opened loans and leases, remained high in the third quarter, at $159 billion, a small increase from the last quarter’s volume but the second highest ever observed. Mortgage originations, which we measure as appearances of new mortgage balances on consumer credit reports and which include refinances, were at $528 billion, a notable jump from the $445 billion seen in the same quarter last year. Aggregate credit limits on credit cards also increased, by $27 billion, continuing a 10-year upward trend.
- Credit standards tightened slightly in the third quarter. The median credit score of newly originating borrowers increased in the third quarter for mortgages, to 765, a 6 point increase from the first half of the year. Auto loans also saw tightening in underwriting standards, with an 8 point increase in the median originating credit score. The origination volume remained high, with $30 billion in subprime originations, a level on par with the last several years.
- Aggregate delinquency rates worsened in the third quarter of 2019. As of September 30, 4.8% of outstanding debt was in some stage of delinquency, a 0.4 percentage point increase from the second quarter due primarily to increases in early delinquency buckets. Of the $667 billion of debt that is delinquent, $424 billion is seriously delinquent (at least 90 days late or “severely derogatory”, which includes some debts that have previously been charged off that the lenders continue to attempt collection).
- About 186,000 consumers had a bankruptcy notation added to their credit reports in 2019Q3, an improvement from the 215,000 in 2018Q3.
Auto Loan Originations
Credit Score at Auto Loan Origination
Percent of Balance 90+ Day Delinquent
Transition into Serious Auto Delinquency
Transition into Serious Credit Card Delinquency
Five Comments
- Delinquencies have been rising for 6-7 years in this allegedly booming economy where the unemployment rate is near record lows.
- Subprime auto loans account for well over 25% of auto loans.
- Subprime auto loan serious delinquencies are at or above where they were before the start of the Great Recession in all age groups.
- Credit card delinquencies for the 60-69, 50-59, and 40-49 age groups are at the level reached prior to the great recession.
- Writeoffs rate to be immense in any sort of sustained jobs downturn.
Mike “Mish” Shedlock
And this just out showing US debt is 5% of total $255 trillion worldwide debt, and emerging market debt is 1/3 of the total. Your myopic view is distorting your analysis.
link to zerohedge.com
Debt monetization is coming.
it is already here.
Rephrase. More debt monetization is coming.
Nominal household debt is at a record high. Nominal debt/nominal GDP ratio is way, way, down.
Further evidence that GDP is such a lousy measure of anything that any statistic involving GDP is itself meaningless?
Nothing listed looks scary to me. Glad to see credit standards moving up. With rates this low, it makes sense to use debt. I bought a car and the price would be the same with cash or a 5 year loan at 0%. I took the loan. On another car, I got $1,000 off if I financed at 4%. I had to make 4 payments and then I could pay it off. This was another good reason to borrow. Credit card debt is way up as cards are used more in business. Our company purchases about $20,000 a month with credit card rather than on account as we did before. End up with cash back on the card and never pay interest.
What’s worse than the US consumer? That would be foreign consumers and govt’s all over the world, which is why the US will continue to see foreign capital flow into dollar-based assets, especially the stocks of blue chip companies that have real collateral (unlike govt debt).
Instead of govt’s continuing to confiscate money from their citizens to make up for their incompetence and fraud, why don’t we force them to shrink the size of govt and enforce existing anti-trust laws, which would increase competition to reduce costs and allow people to keep more of what they earn?
This SOLUTION obviously makes too much sense for self-interested govt’s, which is why it will never happen until desperation forces civil unrest and revolutions. It’s already started outside the US, and when the high dollar and interest rates force the reset, it is coming to a town very near everyone, especially when govt pensions get whacked hard.
Besides the fact that debt is growing much more slowly that the economy, and much more slowly than the underlying asset values, the chart that really stands out to me is the credit card delinquencies. For all age groups, delinquencies dropped precipitously after the great recession, and they have stayed low for all groups other than 18-29. It would seem that the great recession was harsh enough to teach lasting lessons about managing credit card debt to people that went through it, and that those lessons will be with them for the remainder of their lives. As for those too young to have had credit cards in the great recession, no lesson was taught, and millennials have learned nothing from their parents, and must learn for themselves the importance on managing credit card debt.
This also is reflected in the higher student loan defaults. The young could avoid much pain if they learned that the one problem with debt is that sooner or later you have to pay it back, and that if you have too much, you become a debt slave.
The unprecedented debt load of major economies, like the United States, China and the EU is fraught with a disastrous threat for the entire world. This could lead to a disaster that will by far exceed the Great Depression if deleverage starts, Valdai Club expert Alexander Losev warns. link to valdaiclub.com
The Future of Banking Is … You’re Broke
Our present financial ruin is being turned into a business model. link to wired.com
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“Some observations as a European (Dutch) visiting the US: poverty in the US seems to me, striking. I feel like, for large parts, the US is essentially a third-world country. And visiting a wealthy city – such as New York – , there is this feel of relentlessness and of desperation. I’ve also never in my interactions with people been so reduced to my income bracket or (perceived) wealth.
I also have a friend who visits the US multiple times every month (he’s an airline pilot). He’s not left at all, and not that concerned with inequality, He actively dislikes the US experience because the experience of inequality is so visceral, and seems so ingrained in American culture as normal, or as a matter of fact of the world.
When we were talking about this some time ago, we agreed that US culture felt “hollow” .. important values seem to be supplanted and replaced by money and profit. People seem to have forgotten what constitutes a good life, even if they can afford it. Of course this take is reductive, but this weird feeling I’ve felt in the US I’ve never felt anywhere else. Sadly, I also feel like the Netherlands is moving more and more in this direction.”
I’d venture to say NY is a place where people define themselves by their wealth more than the vast majority of the US. God knows I feel weird when I go there. However, you make an excellent point, the US in many respects is a third world country, the culture is being hollowed out (we call it multiculturalism, although greed or simple financial insecurity is certainly a factor). Robert Reich, who was Clinton’s Treasury secretary and more or less a communist jerk, but who still makes intelligent remarks once in a while has pointed out that if the US had the income distribution now that it had in 1975 the per capita income would be $90K as opposed to about the $50K it actually is. That explains a great deal.
I was in New York recently, it truly is repulsive. I’d call it hell on earth given the values of the city.
With these levels of debt being near those of the last recession, it’s no wonder the repo market froze up 6-8 weeks ago. The Fed truly is fighting the last battle.
GREAT ! The Dow and other Ponzi schemes will SOAR !
There really is one way out of this. Inflation
There is no other solution. It will finally come in the form of helicopter money.
Seriously Mish what stops the Fed from buying up bad debt and sending people the title to their property. Not exactly saying the Fed would ever actually free the plebes but at this point I don’t see any other way. Deflation can never be allowed the happen under any circumstance.
You think the wealthy, who run the country, will allow anyone to seriously inflate their money into nothingness? C’mon.
They expect it because its an inherent part of the system. Deflation is the part where they won’t get paid because of defaulting loans.
Inflation is creation. Deflation is destruction.
In a perfect world the Fed wants 4% GDP growth and 4% inflation. That would basically shift the wealth to the first with access to money. 2% prime intest rates would be perfect. The people would slowly get ground into zero sum 4% debt growth.
The rich of course would get 4% richer every year.
Deflation would create the opposite. The poor get richer and the rich get poorer. So C’mon man.
Inflation never has been, never will be, a productive way out of anything.
OTOH, what has worked in every society for as far back as records go, is simple default and bankruptcy. Those who cannot pay, pay all they have hence can, and the rest is written off.
Any deviation from that, has, again, never worked. Not debtors prisons, not indentured servitude/slavery for generations. Not “reparations.” No nothing. Just straight up, age old, non fancy bankruptcy.
Paraphrasing Clint Eastwood: You take all a man’s got, but not everything he is ever going to have.
I am not any way shape or form advocating inflation as productive.
I am just saying the path forward is inflation.
Specifically a short bout of deflation following a huge round of inflation.
Bankruptcy is the ultimate healing mechanism but the downfall of short term election cycles is what works today is what happens.
Long term pain for short term gain.
Inflation is the worlds path forward. The is no other way.
What do you think was the policy of the last ten years? Inflation in the RE is through the roof, a central banking “success”. It also gooses the GDP as it is unaccounted in the official stats.
You are correct. The Fed was buying all asset types until the end of 2017. Then they reversed course and you saw what happen to the markets in 2018. There is literally no way out but the Fed monetizing the debt away. Ray Dalio and others have said that is what is coming whether we like it or not. They will be buying not only real estate securities, bonds and stocks but also public pension debt in the 2020s.
You are probably right. At least they will try. Meaning, the best America can hope for, is that the Muzzies beat them to the punch and end the charade once and for all. Pretty sad when becoming a colony of an ISIS led Caliphate, is a significant improvement on what is most likely scenario for the future.
massive defaults will take care of this situation and take the economy with it. The student loans are already demonstrating an unwillingness to pay.
Debt is only important when measured against GDP.
Student debt is the only rapidly increasing sector. Not good.
Only if debt and activity/GDP are truly independent variables, such that GDP has no dependence on borrowing. IOW, only if you can stop borrowing, without GDP taking a hit as a direct result.
At the opposite extreme, if every single penny of GDP is a direct result of borrowing, GDP becomes completely irrelevant in determining whether debt is serviceable or not. Very much akin to a pure Ponzi scheme, which is always technically broke, just living on borrowed time.
In practice, every economy exists somewhere in between those extremes. But the more dependent GDP is on new debt, the less ultimate debt service is cushioned by a GDP is also higher due to the debt itself. Much the same way it didn’t much help with excessive housing debt levels in 2007, that the “asset value” backing them was also high.
I would add that real estate debt should be considered two ways. One is as a function of GDP, which reflects the economies ability to service it, but also as a function of the overall value of underlying assets. Real estate loans today are about as high as 2008, but the value of real estate today is much higher, so the ratio of loans to value is much lower.
I agree with you. The only part of the total loan picture that is concerning is the student loan portion.
“but the value of real estate today is much higher”
The roaches and mold in the walls, have put in a lot of work, adding all that value, it seems…..
Debt is only important when you can’t pay it back.
Real estate values can collapse in a second.
I don’t have a password to your photography web site, so I will drop this here.
This researcher created an algorithm that removes the water from underwater images
link to youtube.com
excellent – thanks
Underwater photography very difficult for many reasons
Interesting. The underwater documentaries I like watching have all bright, vivid colors. I didn’t realize, this technology must have been applied for some time.