2020 Household Debt Trends

Published June 2020

Toward the end of 2019, economic experts began noticing a new trend in household debt. That’s because the state of household debt experienced a dramatic upswing in 2019, according to a recent New York Federal Bank Study. The surge of household debt that happened in 2019 is the most significant annual increase we’ve seen since what we saw right before the last economic recession, during 2007. In 2007, we saw household debt increase to over a trillion dollars. Many of the statistics we’ll be using for this article come from the previously mentioned NY Federal Bank Study.

Total Household Debt Balances

In the fourth quarter of 2019 alone, the average household debt balances had surged by $193 billion, which was a 1.4% increase over the previous quarter. For the first time, the total household debt balances were over $14 trillion, having reached $14.15 trillion in total. Over the past five years or so, total household debt balances have been on the rise. Today, our average household debt is 26.8% higher than what the average household debt was during 2013.

So, what’s causing this new trend? It appears that the dramatic increase in household debt that we are seeing occurred because of a significant increase in mortgage debt balances. Again, we saw the most significant increase in mortgage debt balances this year since 2007, right before the last recession.

Mortgage Balances

During Q4 of 2019, mortgage balances had achieved a gain of $9.56 trillion, which is a $120 billion increase since the previous quarter. Home equity lines of credit, on the other hand, do appear to be getting paid off more frequently. Home equity lines of credit dropped by $6 billion, meaning mortgage debt balances rose to $390 billion at the end of 2019.

Mortgage originations also went up. Mortgage originations are the new mortgage balances we see that appear on a person’s credit report when they refinance. Currently, mortgage originations stand at $752 billion. That’s a substantial upswing from the $528 billion posted the previous quarter. It’s also the most originations we’ve seen since the year 2005, slightly before our last recession. So, it’s safe to say that while more people are paying off their home equity lines of credit, more people are also refinancing and posting more debt on their mortgages.

Non-Housing Balances

Nowadays, non-housing debt makes up about $9.95 billion of the complete balance. That means balances for credit cards as well as auto loans increased. So, it should come as no shock when we report that non-housing balances also went up substantially during the fourth quarter to $79 billion. The other categories of debt that don’t feature houses also all increased during the last quarter of 2019. For example, auto loans increased by $16 billion, credit card balances increased by $46 billion, and student loan balances increased by $10 billion.

Credit Cards and Young Borrowers

Another recent trend emerged from last quarter’s statistics as well. Previously, student loan debt was the most common item you’d find on a credit report for a young person. However, nowadays, more young borrowers are using credit cards instead of student loans. Student loan debts were much higher than they are now right before the last Recession. So, there has been some reluctance with young borrowers to continue to use student loans to fund their education, since it appears more of them are now relying on credit cards.

Auto Loans

Auto loans, on the other hand, are becoming increasingly more difficult to obtain. Last year, underwriting standards to apply for an auto loan saw a four-point increase that was required to qualify for a car. Last year, subprime car loans totaled $31 billion, which is very similar to what the statistic has been over the past few years. There also wasn’t much of a change in delinquency rates as far as auto loans concern themselves. Auto loan originations were also very similar to what they were last year, totaling $159 billion.

Aggregate Credit Limits

We saw another increase in aggregate credit limits, which has been true now for a decade straight. The growth on aggregate credit limits totaled $96 billion this last quarter. Possibly because of that increase, credit standards continued to increase in the fourth quarter. Now most borrowers have credit scores of 770 to qualify for their mortgages.

So, what we see currently is a shift in credit card balances that affects all types of debts. Many lenders have shifted their credit focuses, and that is becoming apparent. That’s why we saw so many new extensions of credit during the last quarter of 2019. Perhaps that’s why delinquent debts are slightly decreasing because borrowers are using other lines of credit to pay off old debts. If you haven’t found the right solution to help you get out of debt, try consulting with one of ClearOne Advantage’s Certified Debt Specialists at 888-340-4697.