Calculated Risk (via the NY Fed) details household debt is now down more than 6% from its peak:
The Federal Reserve Bank of New York today announced the release of a new quarterly Report on Household Debt and Credit and an accompanying web page. The report shows that households steadily reduced aggregate consumer indebtedness over the past seven quarters. In the second quarter of 2010, they owed 6.4 percent less than they did in 2008, the peak year for indebtedness.
Additionally, for the first time since early 2006, the share of total household debt in some stage of delinquency declined, from 11.9 percent to 11.2 percent. However, the number of people with a new bankruptcy noted on their credit reports rose 34 percent during the second quarter, considerably higher than the 20 percent increase typical of the second quarter in recent years.
Source: NY Fed / BEA
Most debts are down perhaps due to bankruptcies and write-offs. Student debts, which cannot be written off, seem to be holding steady.
ReplyDeleteagreed, but deleveraging none-the-less
ReplyDeleteMost debts are not down. I took a quick look at the data, going back to Q4-08, and the only two categories that have seen a significant decline are mortgage (9.7 to 8.7) and credit card debts (.8 to .7). With mortgage driving the vast majority of the "deleveraging", my fear is that this is less an indication of consumers cleaning up their balance sheets and more like deadbeats abandoning thier homes to banks.
ReplyDeleteIt would be great to see what % of the mortgage deleveraging was being driven by foreclosures vs. home ownerns actually reducing their debt and not treating their home as a piggy bank.
Thanks
@Anon 9:56am Deleveraging is occuring faster than the economy is growing. Debt declined even though GDP was contracting during parts of 2008-2009. To date I would say there is quite a bit of deleveraging going on.
ReplyDeleteWe're deleveraging while our "leaders" are doing just the opposite with our federal budget.
ReplyDeleteWe need to throw these criminals out, and soon.
@Anon 12:21
ReplyDeleteMy point is that I think it's important to distinguish if the deleveraging in question was driven by households paying down their debt balances, or if the ~10% reduction in mortgage debt was driven more by households defaulting on their loans. There are very different dynamics involved in both of these scenarios that have greater implications.
If driven by households paying down balances, that would be a long-term positive in my view as consumers are cleaning up their balance sheet and while this deleveraging was likely offset by lower household consumption of goods, over time those trends should normalize on a healthier base. However, if the reduction in household mortgage debt was primarily driven by default, my guess is that we have further negative consequences to pay down.
On a related note, I've read articles about households that chose strategic default on their mortgages. In the one example I remember, the couple was still living in their house until the bank could get them kicked out. Meanwhile, with no rent and no mortgage, they were loving life and enjoying their new found "discretionary income". That is definitely setting up a negative long-term economic dynamic, especially when coupled with the federal leveraging we are seeing as Paul pointed out.
Thanks