Consumer debt is approaching new highs with the current household debt set to be $1 trillion above the peak debt level of 2008, by the end of June 2018, according to a study by LendingTree. In the second quarter, consumer debt levels are approaching $15.7 trillion compared with $14.7 trillion a decade ago, the study found.
Unlike the last high in 2008, this time around, mortgages make up for a lesser share of total household debt even though they comprise the largest amount of debt. “As measured by a percentage of disposable income, outstanding mortgages comprise less of a liability,” the LendingTree study noted.
Current levels of mortgage balances consist of around 68 percent of disposable income while credit card balances are less than 7 percent of income. In 2008, balances were as high as 98 percent and 10 percent, respectively.
“While nominal total debt levels now exceed 2008 levels, households are much better situated to handle debt then they were a decade ago,” the study said. The current mortgage balances levels have also resulted in rising home equity, the study found. “Homeowners today, on average, have significant equity in their homes. Ten years ago, equity was virtually nonexistent,” LendingTree said.
In fact, household net worth as measured by the Federal Reserve Financial Accounts, reached $100 trillion for the first time last quarter. The study noted that assets, which primarily consisted of financial instruments and real estate gained more than $1.07 trillion in the first quarter, outpacing the additional debt that Americans accumulated.
“Nonetheless, liabilities have been steadily increasing in recent years. But unlike a decade ago, mortgages aren’t the culprit,” LendingTree said. Instead, non-mortgage related debt such as student loans, credit cards, and auto loans have been growing. “By the end of the second quarter of 2018, we’ll have $1 trillion more in household debt than we did in 2008 and none of it is attributable to housing,” LendingTree said.
According to the study, mortgage-related household debt has fallen by 5.5 percent since the third quarter of 2008. On the other hand, consumer credit has increased by 45 percent. The study found that while credit card debts were still low, student loan debts were growing the fastest rising 130 percent since 2008.