N.Y. Fed: Household Debt to Top Record Later This Year

U.S. household debt levels are expected to set a new record later this year, according to economists at the Federal Reserve Bank of New York today. The previous record was reached in the third quarter of 2008 at $12.7 trillion. Household debt levels were at $12.6 trillion in the final quarter of 2016.

The debt balance has significantly changed since 2008, officials pointed out. Housing-related debt accounted for 78.6 percent of debt in 2008 but only 71.2 percent in 2016. Meanwhile, the share of student debt has more than doubled from 5 percent to 10.4 percent, and the share of auto loans has grown by about half, from 6.2 percent to 9.2 percent.

Noting strong asset prices, low interest rates and steady household income growth, New York Fed President and CEO William Dudley said that “the household sector’s financial condition today is in unusually good shape for this point in the economic cycle.” He added that the share of debt held by older borrowers, who tend to have higher and more stable incomes and more experience with debt, has risen.

And while educational attainment is strongly positively correlated with higher homeownership rates — even for degree-holders with student debt — Dudley and other New York Fed staff cautioned that the rapid growth of student debt poses risks due to “stubbornly high” delinquency rates. A student debt balance of more than $25,000 means that borrowers in their 20s and early 30s are about three percentage points less likely than college graduates with less debt, and about eight percentage points less likely than graduates with no debt, to own a home — although homeownership rates approach convergence as borrowers reach their mid-30s.