Yesterday the New York branch of the Federal Reserve released its quarterly assessment of consumer credit growth, which includes both mortgage and non-mortgage debt. We discussed the release in full detail in The Closer (link) but also show highlights below.
As shown in the chart below, growth of total outstanding balances is dominated by mortgage debt, which accounts for just shy of 68% of the total. Mortgage debt is rising 4.5% YoY, an entirely sustainable pace, while non-mortgage debt is only rising about 3.7% YoY. Home equity line of credit lending continues to collapse, dropping 7.6% YoY in Q2, while auto and credit card debt is rising around 4.7% YoY. Finally, student loan balances are rising 5.2% YoY, above the lowest levels of the past 15 years but near to them. Start a two-week free trial to Bespoke Institutional to access The Closer and the rest of Bespoke’s suite of Institutional products.
Debt levels continue to rise and have grown for 20 straight quarters, but most of that is a function of economic growth. As shown in the chart below, relative to personal income or disposable personal income, mortgage + non-mortgage consumer debt balances are only one quarter removed from the lowest levels in the survey’s history.
While debt growth and the type of debt outstanding is fodder for concern, it’s worth keeping in mind that the credit scores of loans made to mortgage or auto loan borrowers are high relative to history. While that doesn’t ameliorate all concerns about debt loads, it’s a very different picture from the pre-crisis years when debt loads surged thanks to huge lending to sub-prime borrowers.
Finally, a look at delinquency. Late payments are rising for some types of loans but falling for others. Student loan delinquency rates of ~10% haven’t moved much in recent years, but credit card and “other” (installment, etc) loans have also seen a modest uptick. Auto loan delinquency rates have risen since 2014, but may be peaking out thanks to the increase in lending standards that kicked in when delinquencies started rising.