Household Debt Climbs to Record High, Delinquencies Rise

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

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Transition into Serious Credit Card Delinquency

Five Comments

1. Delinquencies have been rising for 6-7 years in this allegedly booming economy where the unemployment rate is near record lows.
2. Subprime auto loans account for well over 25% of auto loans.
3. Subprime auto loan serious delinquencies are at or above where they were before the start of the Great Recession in all age groups.
4. Credit card delinquencies for the 60-69, 50-59, and 40-49 age groups are at the level reached prior to the great recession.
5. Writeoffs rate to be immense in any sort of sustained jobs downturn.