Mike Shedlock

Given stagnant wages and higher taxes, the only way households can increase spending is to go further into debt.

The New York Fed quarterly report on Household Debt and Credit shows that is what happened.

Aggregate consumer debt increased in the fourth quarter by $241 billion, the largest quarter to quarter increase seen since the third quarter of 2007. As of December 31, 2013, total consumer indebtedness was $11. 52 trillion, up by 2.1% from its level in the third quarter of 2013. The four quarters ending on December 31, 2013 were the first since late 2008 to register an increase ($180 billion or 1.6%) in total debt outstanding. Nonetheless, overall consumer debt remains 9.1 % below its 2008Q3 peak of $12.68 trillion.

Mortgages, the largest component of household debt, increased 1.9% during the fourth quarter of 2013. Mortgage balances shown on consumer credit reports stand at $8.05 trillion, up by $152 billion from their level in the third quarter. Furthermore, calendar year 2013 saw a net increase of $16 billion in mortgage balances, ending the four year streak of year over year declines. Balances on home equity lines of credit (HELOC) dropped by $6 billion (1.1%) and now stand at $529 billion. Non-housing debt balances increased by 3.3 %, with gains of $ 18 billion in auto loan balances, $53 billion in student loan balances, and $11 billion in credit card balances.

Delinquency rates improved for most loan types in 2013 Q4. As of December 31, 7.1% of outstanding debt was in some stage of delinquency, compared with 7.4% in 2013 Q3. About $820 billion of debt is delinquent, with $580 billion seriously delinquent (at least 90 days late or “severely derogatory”).

Housing Debt

  • Originations, which we measure as appearances of new mortgage balances on consumer credit reports, dropped again, to $452 billion.
  • About 157,000 individuals had a new foreclosure notation added to their credit reports between October 1 and December 31.
  • Foreclosures have been on a declining trend since the second quarter of 2009 and are now at the lowest levels seen since the end of 2005.
  • Mortgage delinquency rates have seen consistent improvements; 3.9% of mortgage balances were 90+ days delinquent during 2013Q4, compared to 4.3% in the previous quarter.
  • Serious delinquency rates on Home Equity Lines of Credit decreased to 3.2%, down from 3.5% in 2013Q3.

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.