Economy Watch: Consumer Debt Outlook Healthier
- Aug 10, 2016
American consumers borrowed a little more in the second quarter than the first, and they aren’t defaulting on their debts as much as in recent years. In fact, in the case of mortgage defaults, the rate is as low as it’s been in 18 years. These metrics spell good news not only for the for-sale residential sector, but for commercial sectors of the economy supported by consumer spending, especially retail (the latest report on retail sales will be out at the end of this week).
The Federal Reserve Bank of New York’s Center for Microeconomic Data reported on Tuesday, in its household debt quarterly report, that household debt increased by $35 billion (a 0.3 percent increase) to $12.29 trillion during the second quarter of 2016. That moderate growth was driven by increases in auto loan and credit card debt, which were up by $32 billion and $17 billion, respectively.
Mortgage debt declined by $7 billion in the second quarter, after a $120 billion increase in the first quarter, and student loan balances were roughly flat. Also, the second quarter saw improvements in overall mortgage delinquency rates and another historical low (over the 18 years of the data sample) in new foreclosures.
Overall delinquency rates improved, continuing the trend in place since 2010. In the second quarter, 4.8 percent of outstanding debt was in some stage of delinquency, down from 5 percent in the previous quarter, and 5.6 percent in the second quarter of 2015, the NY Fed reported. There were 82,000 consumers with new foreclosure notations on their credit reports–another low in the 18-year history of that data set, and definite good news for retailers.