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US household debt levels held back in first quarter by consumers reluctant to borrow

WASHINGTON – U.S. household debt levels were mostly unchanged in the first three months of this year, held back by tight mortgage credit standards and consumer reluctance to borrow heavily.

Total household debt ticked up 0.2 per cent to $11.85 trillion in the first quarter, the Federal Reserve Bank of New York said Tuesday. That’s a nearly flat reading after two quarters of increases. Household debt, which includes mortgages, student and auto loans, and credit cards, is still 6.5 per cent below its 2008 peak of $12.7 trillion.

The figures suggest that lenders’ high credit standards and reluctance among consumers to run up debt continue to weigh on the economy.

Americans spent cautiously in the first quarter, even as gas prices fell sharply and hiring picked up. Consumer spending rose at the slowest pace in a year. Total credit card debt fell $16 billion, or 2.3 per cent, during that period.

Consumers are also cautious about borrowing against their homes. Home equity lines of credit, which ballooned during the housing boom as Americans used their housing wealth to fuel more spending, were also flat at $510 billion.

Banks are requiring larger down payments and in many cases higher credit scores for would-be home buyers, making it harder to obtain a mortgage, particularly for first-time buyers.

Mortgage debt, the largest component of household borrowing, was unchanged in the first quarter from the final three months of last year, at $8.17 trillion. Outstanding mortgage debt rose only $6 billion from a year earlier.

One reason mortgage debt has changed little is that a wave of refinancing in 2013 lowered the interest rate many Americans pay, economists at the New York Fed said. That has likely boosted the proportion of their monthly payments that goes toward paying down loans. The larger payments on principal have helped offset new mortgage debt taken out for home purchases, which are about 10 per cent higher than a year ago.

Tight credit and reluctance to build debt may slow consumer spending and the economy, but there is a bright side as well: they are also improving Americans’ finances.

Just 112,000 Americans received a foreclosure notice in the first quarter, the lowest since the New York Fed began tracking the data in 1999.

And just 255,000 Americans declared bankruptcy, 4.1 per cent fewer than last year and the lowest figure since early 2006.

Slightly more people are keeping up with their student loan payments. Overall student debt has soared since the 2008-09 recession. Americans are carrying $1.19 trillion in student debt, up 7 per cent from a year ago. About 11.1 per cent of student loans are 90 days or more overdue. That’s down from 11.3 per cent in the fourth quarter.