Americans have continued to cut their debts in the years since the recession, but almost all of those declines are now in the area of home loans.
American households had nearly $11.2 trillion in debt in the second quarter of 2013, according to the latest figures from the Federal Reserve Bank of New York, down $78 billion from the prior quarter, a nearly 0.7 percent decline. However, nearly the entire decline came from lower balances on housing-related loans; Americans continued to boost their balances on their credit cards, student loans, and car loans.
"Although overall debt declined in the second quarter, households did increase non-housing debt, led by rising auto loan balances," said Andrew Haughwout, vice president and research economist at the Federal Reserve Bank of New York, in a statement.
Americans cut their mortgage debt by $91 billion from the first quarter to the second quarter. Meanwhile, they boosted their debts in other categories: Auto loans led the way with a $20 billion bump, and credit card debts and student loan balances each jumped by $8 billion over the same time frame. However, they did post declines in home equity loans ($12 billion) and what the New York Fed classifies as "other" loans ($11 billion), a category that includes department store credit cards.
Whether all of this is good or bad news is a matter of perspective. The decline in debt reflects a long-term de-leveraging trend among households: Households have $231 billion less debt than one year ago and more than $1.5 trillion less than the $12.7 trillion household-debt peak in 2008. A decline in household debt signals that households are getting their balance sheets in order.
It signals, too, that Americans are digging out from the rubble of the housing crisis, but it also in part reflects foreclosures taking away housing debt. In other words, it reflects a system in which foreclosures are slowly working their way through courts and are subtracting mortgage balances. The longer-term decline in mortgage debt could also reflect that many consumers have been unwilling or unable to buy homes over the last few years.
Likewise, growth in credit card and auto loan debt could be seen as Americans piling on more debt, but it also signals increased confidence – that they are spending more on purchases, including big-ticket car purchases.
Growing student-loan debt, likewise, comes with both positive and negative news. College-educated Americans generally have far better job prospects and lifetime earnings than their counterparts who only have high school diplomas.
However, as loan balances have grown, so have delinquencies. Nearly 11 percent of student loan balances are now 90 or more days delinquent. That surpasses delinquency rates on mortgage, auto, home equity loans and credit card balances – the latter of which, until recently, was the clear leader in delinquencies.