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Now that I have your attention, according to a recent report released by the New York Federal Reserve’s Center for Microeconomic Data (bet you didn’t know that existed), household debt in America has reached an all-time high. Is that good news or bad news? Could be both…
According to the NY Fed’s Household Debt and Credit Report (another Big Brother report), household debt jumped about $114 billion, second quarter, year over year. The total is now more than $12.5 trillion (with a T) at the end of the quarter; almost 1% more than the first quarter of this year.
The household debt is $164 billion higher than the high mark reached in the third quarter of 2008, the year of the crash (wasn’t that a song by Al Stewart back in ’76). However, according to the Research Center, today’s debt levels shouldn’t raise any real concern…at least not just yet. What does that mean?
While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types. Auto loan and credit card delinquency flows are now trending upwards and those for student loans remain stubbornly high. Not a good omen.
What does it all mean?
Consumers are once again spending. That shows consumer confidence and that’s a good sign for the economy. As long as they can repay their debts! We know what happens when they can’t.
Lenders need to remain vigilant in originating good quality, compliant loans, to qualified applicants evidencing their ability to repay.
Look at the borrower’s recent use of credit and total outstanding debt. Is there a trend toward greater debt dependence? If there is, be careful.
There are still plenty of lending opportunities out there. Be smart, be careful, be aware, and continue to lend responsibly my friends.
Editor’s Note: Mike is, of course, referring to “The Year of The Cat” by Al Stewart that charted on Billboard to #8 on both their Hot 100 and Adult Contemporary Charts.
