Are Consumers Finding It Harder to Repay Debt?
Despite growth in some types of consumer debt, borrowers do not appear to be experiencing greater difficulties in repaying their debts. Nationwide, serious delinquency rates largely fell in the third quarter, with the exception of auto debt, according to a recent issue of The Quarterly Debt Monitor.
Don Schlagenhauf, chief economist for the St. Louis Fed’s Center for Household Financial Stability, and Lowell Ricketts, the Center’s senior analyst, analyzed consumer credit data to see if there were signs that consumers were having greater difficulties repaying debt.
They looked at the change in the rate of serious delinquency (defined as the share of outstanding debt that has a payment at least 90 days past due).1
Why look at the direction of this rate? “The Great Recession taught us that rising rates of serious delinquency are a warning sign for a possible crisis,” the authors wrote.
During the third quarter, the U.S. serious delinquency rate for mortgages decreased 0.6 percentage points from its level in the third quarter of 2015. The rate for home equity lines of credit fell as well, by 0.4 percentage points.
“Mortgage-related debt constitutes the largest share of consumer debt, and the associated (serious delinquency) rates are on a steady downward trend. This offers reassurance that another household balance sheet crisis is not on the horizon,” Schlagenhauf and Ricketts wrote.
The serious delinquency rates for other types of debt also dropped:
- For credit card debt, the third-quarter rate dropped 1.8 percentage points from a year earlier.
- For student loans, the third-quarter rate dropped 0.4 percentage points from a year earlier.
The exception was auto debt. In the third quarter, the serious delinquency rate for auto loans bumped up 0.2 percentage points from the third quarter of 2015.
Even though the serious delinquency rate for student debt declined in the third quarter, the authors noted that it has been rising steadily since 2003 in general and exceeds 13 percent. This is higher than the seriously delinquency rate for other types of debt.
“While many of the serious delinquency rates have fallen to low levels, the elevated rates for auto and student debt deserve continued monitoring,” Schlagenhauf and Ricketts wrote.
Notes and References
1 See The Quarterly Debt Monitor appendix.