Debt on the Rise, Except for Home Loans

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At the end of the third quarter, Americans owed less to lenders across the board than they did three months earlier. However, that change came despite an increased reliance on student loans, auto financing and credit cards.

The total amount owed by consumers to lenders fell to $11.31 trillion between July and September, down $74 billion from the figure seen at the end of the of the second quarter, according to the latest Quarterly Report on Household Debt and Credit issued by the Federal Reserve Bank of New York. While that decline was of just 0.7 percent, it came entirely because of drops in mortgage debt and home equity lines of credit, which slipped $120 billion and $16 billion, respectively. Mortgage debt in particular now stands at just $8.03 trillion, the lowest total seen since 2006.

At the same time, consumers also sought more new mortgages during the third quarter, the report said. in all, originations climbed to $521 billion worth of financing, the fourth consecutive quarter in which an increase was observed. Further, delinquency on home loans slipped to 5.9 percent of all outstanding balances, from the 6.3 percent seen at the end of the second quarter.

On the other hand, non-real estate indebtedness rose significantly, the report said. Student loan obligations climbed $42 billion to a total of $956 billion, and delinquency rose to 11 percent of all balances on these accounts. Further, credit card debt crept up by some $2 billion even as credit limits slipped $9 billion (down 0.3 percent) and inquiries in the last six months declined to 167 million from the previous quarter’s 168 million. Finally, auto loans now stand at $768 billion, the highest point seen in four years.

“The increase in mortgage originations, auto loans and credit card balances suggests that consumers are slowly gaining confidence in their financial position,” said Donghoon Lee, a senior economist at the New York Fed. “As consumers feel more comfortable, they may start to make purchases that were previously delayed.”

Typically, toward the end of the year, consumers start borrowing more, largely to finance holiday purchases, which in turn tends to lead to seasonal increases in instances of delinquency and default in the new year.

Image: .v1ctor., via Flickr

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