Non-Mortgage Consumer Debt Accelerates

The total amount of consumer credit outstanding rose in February 2017 reflecting growth in both non-revolving credit, auto loans and student loans, and revolving credit, mostly credit cards. However, the growth rate of non-revolving credit, which is the larger of the two classes, exceeded the percentage increase of revolving credit.

According to the Federal Reserve Board’s Consumer Credit release, the total outstanding amount of consumer credit climbed by a seasonally adjusted annual rate of 4.8 percent in February 2017, 1.3 percentage points faster than its growth rate in January, 3.5 percent. Non-revolving credit expanded by 5.3 percent, 0.6 percentage points slower than its revised growth rate in January, 5.9 percent. Revolving credit expanded by 3.5 percent reversing the 3.2 percent decline registered in January. On a seasonally adjusted basis, there is now $3.792 trillion in outstanding consumer credit, 74 percent represented by non-revolving credit, $2.792 trillion, while revolving credit accounts for 26 percent, $1,000 trillion.

Growth in non-revolving credit has exceeding revolving credit in most years since 1999. As a result, the share of non-revolving debt has expanded. As illustrated by the figure above, between 1968 and 1999 the share of revolving consumer credit expanded at the expense of non-revolving consumer credit. However, the trend reversed in 1999 and, except for 2006 and 2007, non-revolving credit has recaptured a portion of its share.

However, the composition of non-revolving consumer credit may have shifted. The Federal Reserve Board’s Consumer Credit Report also provides information on the volume of student and auto loans. In 2016, the volume of student loans, $1.4 trillion, exceeded the stock of auto loans, $1.1 trillion. This was not always the case. The data only go back to 2006, but over the 2006-2008 period, auto loan debt outstanding exceeded student loans*. However by 2009, student loans eclipsed auto loans reflecting both shrinking auto loans and a continued expansion of student loans.

A previous post assessed the growth in auto lending and the potential impact on homebuying, but student loans have also expanded. The dynamics of this growth may also have repercussions for housing demand as well.

Recent analysis by researchers at the Federal Reserve Bank of New York sheds additional light on the link between student loans and homeownership**. The researchers find that those with at least a bachelor’s degree are more likely to own homes than those with an associates degree, but at the same time degree holders with no student debt debt are more likely to own homes than those with the same degree and student debt. In addition, the researchers find that higher student debt balances are associated with lower homeownership rates. The homeownership rate for college graduates with no student loan debt exceeds the rate for graduates with less than $25,000 in student debt which in turn is greater than the homeownership rate for borrowers with student debt at or above $25,000.

The researchers point out that the analysis in the post is “descriptive” and that “the statistical associations shown do not necessarily imply causation;” adding that “at least part of what we uncover could result from differences in the kinds of people who choose to attend college.” However, they also point out that “To the extent that the statistical associations we uncovered reflect a causal impact of debt on homeownership, they have important implications for the housing market and future spending behavior.”

* The Federal Reserve Bank of New York provides similar information but their data go back to 2003. The chart below suggests that the trend is similar and auto loans exceeded student debt in each of 2003, 2004, and 2005, though the loan volumes are slightly different.

** Specifically the researchers are linking the presence of student debt and mortgage debt.

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