Consumer debt is approaching new highs with current household debt set to be $1 trillion above the peak debt level of 2008, by the end of June 2018, according to a study by LendingTree. In the second quarter, consumer debt levels are approaching $15.7 trillion compared with $14.7 trillion a decade ago, the study found. Yet, mortgages make up a small part of it.
Unlike the last high in 2008, this time mortgages make up for a lesser share of total household debt even though they comprise the largest amount of debt. “As measured by a percentage of disposable income, outstanding mortgages comprise less of a liability,” the LendingTree study noted.
Current levels of mortgage balances consist of around 68% of disposable income while credit card balances are less than 7% of income. In 2008, balances were as high as 98% and 10%, respectively.
The study stated that while total debt levels now exceed 2008 levels, households are much better situated to handle debt then they were a decade ago. The current mortgage balances levels have also resulted in rising home equity, with most homeowners having significant equity in their homes compared to 10 years ago.
In fact, household net worth as measured by the Federal Reserve Financial Accounts, reached $100 trillion for the first time last quarter. The study noted that assets, which primarily consisted of financial instruments and real estate gained more than $1.07 trillion in the first quarter, outpacing the additional debt that Americans accumulated.
According to Lending Tree, liabilities have steadily increased in recent years but mortgages are not the culprit. Instead, non-mortgage related debt such as student loans, credit cards, and auto loans have been growing. “By the end of the second quarter of 2018, we’ll have $1 trillion more in household debt than we did in 2008 and none of it is attributable to housing,” LendingTree said.
The study found that mortgage-related household debt has fallen by 5.5% since the third quarter of 2008. On the other hand, consumer credit has increased by 45%. The study found that while credit card debts were still low, student loan debts were growing the fastest rising 130% since 2008.