Household Debt Tops $14 Trillion for the First Time, NY Fed Says

Total household debt in the U.S. has surpassed $14 trillion for the first time ever. It increased by $193 billion (1.4%) to $14.15 trillion in Q4 2019, according to the Center for Microeconomic Data at the Federal Reserve Bank of New York. This figure has risen for 22 consecutive quarters, 5.5 years, and is up by nearly $1.5 trillion since the previous peak in the third quarter of 2008.

The biggest driver of the increase was mortgage balances, which rose by $120 billion in the fourth quarter. Mortgages are the largest component of household debt, representing $9.56 trillion, or 67.6%, of the $14.15 trillion total. Several other categories of household debt also rose in the fourth quarter, including auto loans, credit card debt, and student loans.

Significance For Investors

The volume of mortgage originations jumped from $523 billion in Q3 2019 to $752 billion in Q4 2019, largely driven by the refinancing of existing mortgages. This was the highest volume since Q4 2005. Among people taking out a mortgage for the first time, the median credit score was 770 in Q4 2019, up by 5 points from Q3 2019.

Falling interest rates are a major reason that people are refinancing. The rate on a 30-year fixed mortgage dropped by about a full percentage point during 2019, meaning that a $500,000 loan now costs about $300 less per month, according to Bloomberg.

Mortgage originations by people aged 18 to 29 were at the highest level since Q3 2007. For 30-year-olds, originations were at the highest pace since the end of 2005.

In Q4 2019 1.0% of current mortgage balances transitioned into delinquency, meaning they fell more than 30 days behind on payments. This was largely unchanged from Q3 2019. However, 17.4% of mortgages that were in early delinquency (30 to 60 days late) in Q3 2019 became seriously delinquent (90 or more days late) in Q4 2019. Nonetheless, only about 71,000 individuals had a new foreclosure notation added to their credit histories in Q4 2019, a very low figure by historical standards.

Student debt rose by $10 billion in Q4 2019, ending the year at $1.51 trillion. The share of this debt that is seriously delinquent or in default ended the year at 11.1%.

Auto loan originations were high, at $159 billion in Q4 2019. Total auto loan balances were up by $16 billion in the quarter, ending the year at $133 billion.

Among credit card borrowers, transitions into delinquency have been rising steadily since 2016. The problem is especially severe among younger borrowers.

Looking Ahead

If the economy slips into recession, or if the employment picture deteriorates, delinquency rates could rise further. That may place stresses on lending institutions.