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Federal Reserve Bank of St. Louis. "Mortgage Debt Continues to Decline While Auto Lending Soars, Vol. 1, Issue 2, Covering 2016:Q2," Quarterly Debt Monitor : Trends in Consumer Debt in St. Louis, Little Rock, Louisville, Memphis - and Beyond (2016:Q2). https://fraser.stlouisfed.org/title/6285/item/603190, accessed on May 17, 2025.

Title: Mortgage Debt Continues to Decline While Auto Lending Soars, Vol. 1, Issue 2, Covering 2016:Q2

Authors: Schlagenhauf, Don E., Ricketts, Lowell R.
Date: 2016:Q2
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image-container-0 VO L . 1 , I SS U E 2 , COV E R I N G 2 01 6 : Q 2 D e b t Mortgage Debt Continues Decline While Auto Lending Soars By Lowell R. Ricketts and Don E. Schlagenhauf C onsumer debt grew across the United States and all of the major metropolitan areas in the Eighth Federal Reserve Dis- trict in the second quarter of 2016. While non- metropolitan areas showed similar debt growth trends, the total debt in these larger geographic areas is smaller than the MSAs’ . Those are two of the findings of this second issue of The Quarterly Debt Monitor, a detailed report on consumer debt nationally compared to the four largest metropol- itan statistical areas (MSAs) in the District, which has headquarters in St. Louis. 1 This report uses the latest release of the Federal Reserve Bank of NY/Equifax panel data, with the latest observation being the second quarter of 2016. A subset of the figures reported in the pre- vious report is presented to offer a more focused narrative. The special section for this issue will focus on consumer debt trends within nonmetro- politan regions of the seven District states. For readers interested in seeing the full set of updated figures, see the QDM charts appendix.* In addi- tion, the appendix offers a detailed description of our methodology and definitions. Executive Summary 1. In the second quarter of 2016, real per capita consumer debt grew across the United States and all of the major District MSAs except for Memphis. Auto and student debt continue to be the fastest growing debt categories. 2. Per capita mortgage debt grew marginally for St. Louis and the nation, while declining slightly in Little Rock. Mortgage debt holdings in Louisville exhibited the strongest growth, with a 1.7 percent increase over the past year. TABLE 1 Changes in Per Capita Debt Levels and Serious Delinquency Rates Year-over-Year Percent Change from 2015:Q2 to 2016:Q2 2 2016:Q2 United States St. Louis MSA Louisville MSA Memphis MSA Little Rock MSA % Change in Per Capita Consumer Debt Total 1.6 1.4 2.2 –0.2 1.9 Mortgage 0.6 0.5 1.7 –3.5 –0.3 HELOC –2.3 –6.2 0.3 –9.8 –0.3 Auto 8.3 7.7 7.9 7.9 8.1 Credit Card 1.9 1.9 –1 2.9 3.6 Student 3.9 3.2 4.3 5.9 3.3 Change in Serious Delinquency Rate Mortgage –0.7 –0.4 –0.2 –0.4 –0.4 HELOC –1.1 –1.3 0 –1.5 –0.2 Auto 0.1 –0.1 0.6 0.1 0.8 Credit Card –0.9 –0.5 –0.8 –0.8 –0.3 Student 0 –2.1 2 –0.2 0.7 SOURCE: Federal Reserve Bank of New York/Equifax Consumer Credit panel. NOTES: Serious delinquency rates are the share of outstanding debt that is over 90 days past due. Changes to those rates are given as the differences in percentage points. Figures are rounded. In contrast, Memphis declined significantly (3.5 percent), pushing the total level of mortgage debt in Memphis further below 2003 levels. 3. Auto debt grew at an average rate of about 8 percent across the nation as well as in the four MSAs. That outpaced the growth rate for any other type of debt by a large margin. Auto debt in the largest MSAs, save for Louisville, exceeds pre-recession levels. 4. Serious delinquency rates for mortgage and credit card debt declined in both the four MSAs and the nation. However, the fraction *https://www.stlouisfed.org/~/media/publications/quarterly%20debt%20monitor/issue_2/2016_Q2_QDM_appendix
image-container-1 2 2 of auto and student debt that is seriously delinquent jumped by a significant margin in both Louisville and Little Rock. In contrast, serious delinquency rates fell for all types of debt in St. Louis, including a 2.1 percentage point drop for student debt. Despite mostly falling rates, Memphis continues to have the highest serious delinquency rate across all types of debt. 5. With the exception of St. Louis, the size of total debt across nonmetropolitan areas of each state was close (80 percent) to that of the respective MSAs. A comparison of consumer debt trends in nonmetropolitan areas versus metropolitan areas shows similar growth trends for most types of debt. Within mortgage markets, nonmetropolitan areas experienced a milder deleveraging period following the recession. However, the average and total value of mortgage debt in metropolitan areas exceeds that found across nonmetropolitan areas as a whole. The Declining Importance of Mortgage Debt Mortgage debt is typically the largest financial obligation that a household acquires; given this, it represents the largest share of total consumer debt. At its peak in the third quarter of 2007, mortgage debt comprised 74 percent of total debt nationally. As the housing market crashed, so did the rising share of mortgage debt. Within only a year, $340 billion of mortgage debt was shed from the collective balance sheets of consumers. Since the peak, mortgage debt’s share of total debt has declined by 6 percentage points, reaching the lowest level since 2003. Among the hardest hit of the MSAs, Memphis’ mortgage debt contracted from a peak of 68.2 percent to a historic low of 57.6 percent. All of this turmoil in mortgage markets caused extensive dele- veraging for total debt (see Figure 1). Prior to the recession, per capita mortgage debt nationally grew quarterly year-over-year by an average of 10 percent. This quarter marks the first positive year-over-year growth for the nation since the first quarter of 2009. However, other types such as auto and student debt have grown rapidly, buoying total debt. Coupled with the decline in mortgage debt, the rapid growth has claimed a greater share of the total for auto and student debt. Since the third quarter of 2007, auto and student debt grew by 2.2 and 6.4 percentage points, respectively. They now account for 9.1 and 10 percent of total debt, respectively. Figure 2 shows the contribution to total growth for each type of consumer debt within the past year. The decline in mortgage debt for Memphis particularly stands out. The combined growth in auto debt and student debt helped offset much of the overall decline. Growth of per capita debt in Louisville was the strongest thanks to a sizable jump in mortgage debt, coupled with increased auto and student loan borrowing. New auto and student debt constituted over two-thirds of total growth in Little Rock. Memphis: A Strengthening Housing Market despite Declining Mortgage Balances The mortgage market in Memphis continues to contract while the nation and other MSAs have stabilized (See Figure 3). Deleveraging, the process where consumers pay down or shed debt, appears to have resumed since levels steadied around 2014. The latest estimate of real per capita mortgage debt shows levels 5.5 percent lower than in the first quarter of 2003. In Memphis, the deleveraging process following the recession was faster and deeper. Per capita mortgage debt levels for the other MSAs have essentially stabilized while the residents of Memphis continue to shed or pay down mortgage debt. In addition, participation in the Memphis mortgage market is at an all-time low. The borrow- ing rate for mortgages has declined by 6 percentage points in the last decade. In the latest quarter, only 22.7 percent of our sample participated in the mortgage market. In comparison, 27.5 percent of Little Rock residents and 29.5 percent of St. Louis residents had a mortgage. The persistent decline in mortgage debt in Memphis coincides with various positive signals found in the local housing market. Over the past year, the CoreLogic house price index for Memphis has grown by 3.7 percent. According to the Memphis Area Association of Realtors, year-to-date home sales are at the highest level since before the recession. Within our data, the serious delinquency rate has fallen to the lowest level since the first quarter of 2006. Based on calculations using data from a differ- ent source, McDash Analytics, the foreclosure rate in June 2016 fell to 0.8 percent, the same rate seen in July 2007. Given these low distress rates, it is unlikely that defaults and foreclosures are the main force behind the decline. Rather, the deleveraging may be the result of borrowers continuing to pay down their debt. As for the robust activity seen elsewhere, anecdotal evidence has Total Real Per Capita Consumer Debt Index, 2003:Q1=100 F E D E R A L R E S E RV E B A N K O F ST. LO U I S 150 140 130 120 110 100 2004 2006 2008 2010 2012 2014 2016 SOURCE: Federal Reserve Bank of NY/Equifax Consumer Credit Panel. NOTES: “Real” data are inflation-adjusted. The gray bar indicates recession. Little Rock MSA Louisville MSA Memphis MSA St. Louis MSA United States Year Total Real Per Capita Consumer Debt FIGURE 1 SOURCE: Federal Reserve Bank of New York/Equifax Consumer Credit panel. NOTES: “Real” data are inflation-adjusted. The gray bar indicates recession.
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Date: 2016:Q2
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Auto and student loans remained the fastest growing consumer debt categories in the second quarter.
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