Last month, the New York Federal Reserve reported that household debt across the nation has hit a dubious milestone in the first quarter: It surpassed the peak debt level of 2008 at $12.7 trillion.
Household debt — including mortgages, auto and student loans, and credit cards — rose $149 billion compared with the last quarter of 2016, with nearly all the gain coming from mortgages.
Reaching the peak raises questions about whether the backdrop exists again for another financial meltdown. But the data show the current structure of debt is substantially different from 2008.
According to a research officer at the Federal Reserve, the record is “neither a reason to celebrate nor a cause for alarm.” In fact, there are a number of differences between 2008 and 2017.
Mortgage debt has fallen from 73% to 68% of total debt since the peak. That has come along with a rise in auto- and student-loan debt as a percent of the average American’s liabilities. Debt per capita, which hit $53,000 in 2008, comes in at around $48,000. The level has risen steadily since the bottom in 2013, but not nearly as sharply as it did in the years leading up to the financial crisis.
While the percent of debt 90 days delinquent did rise for the second straight quarter, it remains well below the level of 2008 and substantially below the level of the worst days of the financial panic. The NY Fed says 3.37% of all debt outstanding is 90 days or more delinquent; that’s up from 3.3% in the fourth quarter. But it was 8.7% in 2010, and 5.1% at 2008. The reason delinquency has improved is that a lot of the lending is only going to the most creditworthy borrowers. For example, those with credit scores of 760 or greater got 36% of all loans in 2008.
But there are some worrisome signs. Credit-card delinquencies crept up and student-loan delinquencies remain stubbornly high in the low double digits. Delinquencies in the $1.2 trillion auto-loan market were down a bit, but they bear watching after a steady rise since 2012.