How Consumer Debt Has Evolved in the Nation and the Eighth District

October 03, 2016
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Nationally, households have decreased their debt substantially since the financial crisis, while households in the Eighth Federal Reserve District have kept their debt largely the same on average. An article in The Regional Economist explores why this is.

Research Officer and Economist Juan Sanchez and former Technical Research Associate Helu Jiang examined total consumer debt and its main components. (Figures showing these trends are available in the article “District Households Buck the Trend to Pay Down Debt.”)

National Debt Trends

The national average household debt for the period 2004-15 was $79,797, though the amount varied considerably over that time frame. Sanchez and Jiang noted that it was $64,055 in the first quarter of 2004, rose to $90,215 by the fourth quarter of 2008, then declined to $77,698 by the fourth quarter of 2015. That’s an increase of 41 percent, followed by a drop of 14 percent.

Eighth District Debt Trends

Average household debt in the Eighth District, however, didn’t see the same rise and fall. It rose from $44,331 in the first quarter of 2004 to $56,744 in the fourth quarter of 2008, then slipped to $55,428 in the fourth quarter of 2015. This means an increase of 28 percent (as opposed to the 41 percent increase for the nation as a whole), followed by a dip of only 2.3 percent (versus a 14 percent decline for the nation).

Why the Difference in Household Debt?

Sanchez and Jiang noted that of the five main components of household debt—mortgages, home equity loans, credit card debt, student loans and auto loans—three evolved in similar fashion for both the nation and Eighth District: credit card debt, auto loans and student loans.

The authors wrote: “Thus, the difference in the evolution of total debt must be a consequence of mortgages and home equity loans.” They found that mortgages accounted for almost 90 percent of the total difference in the behavior of the nation and the Eighth District. Home equity loans had the next largest effect at 9.1 percent.

Why the Difference in Housing Debt?

Sanchez and Jiang noted that the gap could be due to differences in the level and evolution of house prices. They found that the average median house price in the Eighth District was about 55 percent of the national average during 2004-15.

They also found that house prices fluctuated less in the District than in the nation as a whole. National house prices increased 29 percent over the period 2004-06, fell 23 percent in 2007-11 and nearly recovered to their precrisis levels by the end of 2015. House prices in the Eighth District, however, rose 13 percent, decreased 9.4 percent, then increased 9.7 percent over the same time periods.

Sanchez and Jiang concluded that the variation in the level of house prices seems to account for the difference in the amount of household debt in the Eighth District and the nation. They noted that households usually borrow up to a share of their houses’ value. As house prices fluctuate, so would the amounts borrowed against those values. They wrote: “Thus, as the decline in house prices was larger in the nation than in the District, the deleveraging was larger in the nation than in the District.”

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