Household Debt Service and Financial Obligations Ratios

Last week, we looked at both
Household Debt and the net change in total household liabilities.

The discussion on Household Debt provoked a firestorm of commentary. I refused to rise to the bait that if only debt were inflation adjusted, it would be insignificant.

The Federal Reserve just released their data on the issue: Household Debt Service and Financial Obligations Ratios — and its quite instructive.

The Survey breaks out mortgage obligations from consumer debt:

Mortgages only: 10.35%  this is the highest amount in nearly 15 years — Q3 1991.

Consumer debt only: 5.82%. This is the first time this number has slipped below 6% for 4 consecutive quarters since Q4 1996.

This removes any and all doubt that HELOC and REFIs have replaced credit card debt.

All of the data is here in XL format, for those of you who can make a pretty chart out of what looks like subtle variations in percentages.   Download fed_household_debt.xls


Household Debt Service and Financial Obligations Ratios
Last update: June 15, 2005
(About the release)

See also:
Recent Changes to a Measure of U.S. Household Debt Service
Karen Dynan, Kathleen Johnson, Karen Pence
Federal Reserve Bulletin, October 2003

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What's been said:

Discussions found on the web:
  1. Thom H commented on Jun 18

    Help me understand this, if total homeowner housedhold debt is only 16.16% of disposable income, how does that square with the following:

    “Today, the US Treasury Department released its flow of funds report. This report is often overlooked because it’s not sexy. It simply reports on the level of debt in the US economic system. However, this report once again demonstrates the US is borrowing a ton of money at an increasing pace. There is only so long this can last

    The American consumer continues to borrow as much as possible. From 2000-2004 household mortgage debt increased at a compound annual rate of 13.6%. Total Household debt increased at a compound annual growth rate of 11.81% over the same time period.

    Over the same time period, the total amount of US Household mortgage debt increased from 4.4 trillion to 7.5 trillion – a total increase of 66%. Total consumer debt increased from 6.5 trillion to 10.2 trillion – an increase of 56%.

    The Figures also includes annual rates of increase for all US sectors. The federal government’s annual debt growth, seasonally adjusted now stands at 10%. With the exception of the second quarter is 2002 this is the highest percent increase since 1986.

    Households are in a similar situation with an annual increase in total debt of 9.3% and an annual increase in mortgage debt of 10.6%. Household’s annual rate of increase has slowly increased for the last 8 years.”

    source: BOPNEWS.COM

    Unless there has been a roughly equivilent increase in wages which I don’t believe to be the case, I can’t reconcile the two . Are we truly spending ourselves into national bankruptcy, or have we only had a modest uptick in the percentage of disposable income going to service our household Debt?

  2. Barry Ritholtz commented on Jun 18

    My takeaway is that we have been shifting our spending habits, from revolving credit — the limits of which are formula driven, based upon personal income and credit history — versus a real estate based funding mechanism — HELOC and REFIs.

    The R/E driven financing can only continue so long as rates are going down and/or equity prices are rapidly rising.

    Once that ends, from a macro perspective, the strongest economic driver disappears.

    What replaces it?

  3. None of Your Business commented on Jun 19

    Household Debt Service and Financial Obligations Ratios

    Household Debt Service and Financial Obligations Ratios show analysts more information about how households are spending their money, saving their money, and how they are handling their debt obligations. It looks as though most households are trading …

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