Aggregate Household Debt Expands, but HELOCs Shrink

Data released by the Federal Reserve Bank of New York shows that aggregate consumer debt increased in the fourth quarter of 2013 by 2.1%, or $241 billion, from its level in the third quarter of 2013. According to the release, household debt now totals $11.5 trillion. This is the largest quarter-over-quarter increase seen since the third quarter of 2007. Over 2013, total debt outstanding rose by $180 billion or 1.6%, the first time since the fourth quarter of 2008 that aggregate consumer debt has risen on a 4-quarter basis. Despite the increase in debt outstanding, overall consumer debt remains 9.1% below the peak level of $12.7 trillion that was recorded in the third quarter of 2008.

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Figure 1 illustrates the quarterly growth rate in the components of household debt. According to the chart, growth in mortgages, 1.9%, auto loans, 2.1%, credit cards, 1.6%, student loans, 5.2%, and other consumer loans, 4.3%, all contributed to the quarter-over-quarter increase in aggregate household debt; with student loan debt and other consumer debt recording the highest quarterly percent increases.  Other consumer debt includes consumer finance (sales financing, personal loans) and retail (clothing, grocery, department stores, home furnishings, gas, etc) loans. However, the gains made in these five loan categories were offset by a decline in the amount of household debt attributable to home equity lines of credit. Over the fourth quarter of 2014, this category of debt fell by 1.1%.

An earlier post showed that the recent recovery in house prices was contributing to an expansion in home equity. However, households may be averse to borrowing against this asset. Data from the Federal Reserve Board’s Senior Loan Officer Opinion Survey indicates that while a net increase of bank officers reported that their financial institution eased its lending standards on home equity lines of credit over the fourth quarter of 2013, demand for these financial products weakened, on net. This suggests that the recovery in home equity may have a moderate impact on both a household’s spending and investment.

According to Figure 2, 2.8% of loan officers reported that lending standards on home equity lines of credit had eased over the quarter, a gross of 7% reported that their bank had eased standards while 4.2% mentioned that their bank had tightened standards. Meanwhile, a net of 2.8% of loan officers reported that demand for home equity lines of credit had weakened, 16.9% reported that demand had strengthened while a gross of 19.7% answered that demand had weakened.

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