Mortgage debt remained essentially flat in 2015 but the brief period of household debt deleveraging ended in 2013.
Since then student debt, credit card debt, and especially auto loans have been on the rise.
A New York Fed “Liberty Street” study shows Household Debt Grew Slowly in 2015 as Mortgage Balances Stayed Flat.
Household debt balances increased, albeit sluggishly, throughout 2015. The increase marked the third consecutive annual rise in household balances, after 2013’s modest increase ended four years of reductions. However, the growth in debt has been moderate. Overall, balances owed by households grew $288 billion in 2015, slightly less than the $306 billion increase seen in 2014 and still less than the growth seen in the early 2000s.
The growth has been primarily the result of large increases in nonhousing balances, particularly in student and auto loans; auto loans had another banner year in 2015 with a $109 billion increase, while student loans increased by $75 billion. Credit card balances increased by $33 billion. Originations were robust for auto loans, which saw the highest level of originations since at least 1999. Newly originated mortgage balances remained somewhat sluggish, with the lion’s share of new mortgages going to borrowers with the highest credit scores.
Auto Loan Durations Hit Record High
The rise in auto loans and student debt are both problematic. And the duration of auto loans keep going up and up.
The average new car loan has reached a record 67 months, reports Experian, the Ireland-based information-services company. The percentage of loans with terms of 73 to 84 months also reached a new high of 29.5% in the first quarter of 2015, up from 24.9% a year earlier.
Long-term used-vehicle loans also broke records with loan terms of 73 to 84 months reaching 16% in the first quarter 2015, up from 12.94% — also the highest on record.
Those loan duration numbers are from June 2015.
Here are some additional Household Debt charts from the New York Fed Quarterly Report on Household Debt.
Number of Accounts by Loan Type
Mortgage Originations
Auto Originations by Score
Expect More Debt Deleveraging
Give auto dealers your monthly budget and they are guaranteed to make it “affordable” for you. Lengthening duration is a way to make something seem affordable when it’s not.
Rapidly rising student debt and the non-rise in mortgage debt go hand-in-hand. Millennials cannot afford houses so they don’t buy them.
With the break in the stock market, and a recession at hand, another debt deleveraging cycle is coming up.
Mike “Mish” Shedlock
Don’t sleep on vehicle leasing.
Another avenue consumers pursued to keep monthly payment low is leasing. It has skyrocketed the past few years. Leases are generally 3 or 5 years. What happens (to new auto sales) when the tsunami (millions) of off lease vehicles hits the after market?
“The leasing train keeps chugging along.
January is projected to deliver the highest
lease penetration ever for a single month, with
leases accounting for an estimated 31.6
percent of all new vehicle transactions.”
http://static.ed.edmunds-media.com/unversioned/img/industry-center/analysis/january-2016-sales-insights.pdf
The increase in student loan debt is very troubling. Unlike mortgage or auto loans, they can not be discharged via repossession or bankruptcy. For anyone that defaults, the collection powers for agencies dealing with student loans would make a mobster envious.
We are creating a generation of indentured servants that will serve a lifetime trying to satisfy their student loan debts.
I am puzzled by the surprising strength in the January retail sales numbers put out this morning, especially considering weak wholesale sales numbers for several months now.
Maybe the comps were easier because of last years cold weather ??
ZH had a nice post on this
Looks like they got a bit carried away with seasonal adjustments
Mish
The seasonal factor for January was the most favorable (for January) since 2006.
To get adjusted number divide unadjusted by seasonal factor.
http://www.census.gov/retail/marts/www/adv44x72.txt
I bought a 2012 last spring. Comparables are now selling for a few thousand less. Timing depressions isn’t easy.
Prepare for values to drop even more and for a price war in the automotive sector. Because many people have chosen to lease cars in recent years we are now positioned that millions of used cars will soon be thrust onto the market as leases expire. This is a big problem for the makers of new cars.
This flood of used cars is expected to put massive pressure on the prices of used cars as well as reduce the need for many people to buy a new vehicle because of a secondary market that offered only limited choice and selection. The article below titled, “Auto Price War Ahead” paints a ugly picture for the auto industry going forward and of good prices for those buying both new and used cars.
http://brucewilds.blogspot.com/2015/11/auto-price-war-ahead-lower-prices.html
Those who loan out money foolishly deserve to lose it and deadbeats should be labeled as such. Instead we bail out fools and give deadbeats a 2nd, 3rd, 4th and 5th chance.
yep … goes hand in hand with profits privatized and losses socialized.
Amerikan Kapitalism
These days a lender considers anyone who pays their debt in full to be a deadbeat. Banks are so leveraged they don’t want the loans performing TOO well. And don’t dare ask them about those evil depositors!
Recession? Recession? 1st quarter GDP Now is at 2.7%. A hell of a long way off from recession, even if by some miracle 4th quarter GDP is revised down to negative.
Anything else in your quiver?
GDPNow @ +2.7%? So? We’re only 6 weeks into the quarter … and we’re still getting December numbers mixed with January’s … numbers that ultimately be revised … and revisions for the most part to the downside. Plenty of time for GDP to move in either direction.
“Miracle” for Q4 to be revised negative? BEA notorious for “FAILS” at economic turning points. Case in point Q1 2008 … initially reported as +0.6% … after several revisions all the way to +1.0%.
Ultimately (2013)? … -2.7%
Anyways, a quarter doesn’t necessarily have to be negative to start (or be in) recession. NBER is the official caller of recessions … not BEA.
I would add that increasing student loans go hand in hand with increasing auto loans and that both are reasons for stagnant mortgage growth. A real house of cards this one.
Pingback: Auto Loans, Student Debt Lead Household Re-Leveraging | Grater Post
shamrock,
Dont forget they changed they way GDP was calculated so likely we are already negative.
If GDP is so great, why do we have several quarters of declining corporate revenues and profits?
I think the answer is obvious.
Pingback: Auto Loans, Student Debt Lead Household Re-Leveraging « Financial Survival Network
If a new car can give 7+ years of service, why not finance it for a long duration?
Because to last 7 years car needs lots of maintenance that people do not factor in. Most people don’t keep car 7 years anyway. If the only way a car is affordable is to finance it for 7 years, then it isn’t affordable.
Mish
THE ONLY ENROLLMENT STATS FOR COLLEGE STUDENT I WAS ABLE TO FIND SHOWED BETWEEN 2012 AND 2015 ENROLLMENT DROPPED 50%. SO WHY IS STUDENT LOAN DEBT INCREASING? I’M GUESSING THE STUDENTS WHO ARE ENROLLED BEYOND THEIR FRESHMAN YEAR ARE FACING, ONCE AGAIN, HUMONGOUS INCREASES IN TUITION, TEXTBOOK AND/ OR FEES.
DON’T YOU FIND IT ODD THAT EDUCATION IS THE SECOND LARGEST INDUSTRY IN THE NATION AND THE PUBLIC KNOWS SO LITTLE ABOUT THE OPERATIONS OF BOTH THE PUBLIC SCHOOLS AND HIRE EDUCATION? DON’T YOU FIND IT INTERESTING THAT STUDENTS AREN’T PROTECTED BY ANY CONSUMER LAWS? OR THAT BUSINESS DOESN’T SEE EDUCATION AS VITAL TO THE NATIONAL INTERESTS. OR FOR THAT MATTER ITS VITAL INTERESTS?
WONDER IF ANYONE IF FOLLOWING THE DIFFERENT COLLEGE DISCIPLINES TO SHOW WHETER OR NOT RECENT GRADS ARE BEING EMPLOYED IN THEIR FIELS AND IF THOSE WAGES ARE KEEPING UP WITH INFLATION OR DOPPING? IT WOULD ALSO BE INTERSTING TO TRACK THOSE STUDENTS THEN FOR THE NEXT 5 YEARS AND SEE HOW MANY OF THEM STILL HAVE THAT COLLEGE JOB THEY FIRST GOT OUT OF COLLEGE.
INTERSTING ABOUT THE MORTGAGE ORIGINATION NUMBERS IS THAT THE HIGH OF ONE QUARTER IS ABOUT WHERE THE LOW OF THE PREVIOUS QUARTER WAS.
WHEN I SKIMMED OVER THE DEBT STATS TWO THINGS POPPED OUT AT ME:
#1 AMERICANS CAN’T GET OUT OF DEBT. THEY CAN’T PAY IT OFF.
#2 WHAT IS DRIVING DEBT UPWARD? INFLATION? DEVALUATION OF USD (OR EXPORTERS ADJUSTING FOR THE PHONY IMF VALUATIONS OF USD BY PADDING PRICES?) ARE CUSTOMER’S WAGES DROPPING? ARE PRICES OF GOODS AND SERVICES RISING? ARE CUSTOMER WAGES DROPPING FASTER THAN THE PRICES OF GOODS AND SERVICES ARE DROPPING? SEEMS CUSTOMERS CAN’T BE BUYING MORE GOODS AND SERVICES SINCE RETAIL SALES HAVE DROPPED OVER THE PAST YEAR AT LEAST 50%. SO IT SAYS THE INCREASE IN DEBT IS A DESCREPENCY BTWEEN HE COST OF LIVING AND THE COST OF GOODS AND SERVICES DIVERGING. WHAT DO YOU THINK MISH?
WHICH RAISES THE SPECTOR OF PEONAGE. ONE CONCERN I’VE NEVER HEARD RAISED IN THE MEDIA OR IN BOOKS IS THE CONNECTION BETWEEN MASS PRODUCTION AND MASS CONSUMPTION AND THE CONNECTION BETWEEN WAGES AND THE COST OF A GOOD OR SERVICE AND CONSUMPTION.
A PROBLEM CONTRIBUTING TO THE GREAT DEPRESSION WAS MASS PRODUCTION, WORKERS’ WAGES AND CONSUMPTION. SEEMS THE YEARS LEADING INTO THE ROARING 20IES WAS THE WARHOUSES WERE FILLING WITH STUFF. OR ANOTHER WAY OF LOOKING AT IT, MASS PRODUCTION WAS PROVING TO BE A FAILURE.
LET’S LOOK AT THE DATES OF ECONOMIC “DISRUPTIONS” FROM ROUGHLY THE BEGINNING OF OUR INDUSTRIAL AGE: 1857, 1860, 1865, 1869, 1873, 1872, 1887, 1890, 1893, 1896, 1899, 1902, 1907, 1910, 1913, 1918, 1920, 1923, 1926, 1929 (THE GREAT DEPRESSION). NINETEEN DISRUPTIONS BEFORE 1929 (WHICH I REMMEBERED SO WELL BECAUSE OF MOVIES.). THE 3 YEAR DISRUPTION OF THE BUSINESS CYCLE OCCURRED AT 3 YEAR INTERVALS 57.89% OF THE TIME (IS THERE SOMETING MAGICAL ABOUT THE NUMBER 3 MISH?) THE SECOND HIGHEST INTERVEAL WAS 5 YEARS WHICH OCCURRED 20.05% OF THE TIME. WHAT ONE HAS TO REMEMBER THAT BEFORE WW2 THE MAJORITY OF AMERICANS MADE THEIR LIVING FROM AGRICULTURE WHICH REQUIRED MONEY BE AVAILABLE FOR THE BUYING AND SOWING SEEDS IN THE SPRING TIME THEN THE HARVESTING AND SELLING OF THE CROPS IN THE FALL TIME–NO MUCH REFRIGERATION IN THOSE DAYS. SOME ECONOMIC DISRUPTIONS WERE CAUSED BY OVER PRODUCTION AND/ OR THE LACK OF AVAILABILTY OF MONEY (PRECIOUS METAL CURRENCIES.). SOME DISRUPTIONS WERE ACTS OF STUPIDITY WHILE OTHERS WERE ACTS OF CUPIDITY. BUT ONE THING THIS DOES REVEAL IS THAT THE VAST MAJORITY OF WORKERS (AND RETIREES) HAVE NO CONTROL OVER THEIR INCOME OR OVER THE COST OF THEIR STANDARD OF LIVING. ECONOMIC DISRUPTION CAN BANKRUPT ANY BODY, NO MATTER HOW CAREFUL HE IS.
WHAT MADE THE 20IES ROAR AND EMPTIED THE WAREHOUSES WAS CHEAP CREDIT THE RESULT OF EUROPE HAVE TO PAY THE USA BUSINESSES FOR WW1 SUPPLIES IN GOLD. INSTEAD OF USING THAT LARGESSE TO IMPROVE THE ECONOMY AND MAKE IT MORE EFFICIENT. INSTEAD OF USING THAT LARGESSE TO PAY WORKERS ENOUGH THAT THEY COULD BUY THE GOODS AND SERVICES THEY PRODUCED. THE MANUFACTURES KEPT WAGES LOW AND RETAILERS BEGAN OFFERING STORE CREDIT. THAT IS UNTIL THE WORKERS MAXED OUT THEIR WAGES AND THE EUROPEANS GOT THEIR GOLD BACK, AT WHICH TIME THE USA ECONOMY SEIZED UP.
THE STATS YOU PRESENT SHOW THAT HAPPENING AGAIN. I DON’T KNOW IF IT IS BECAUSE OF DESIGN OR BECAUSE OF STUPIDITY BUT HISTORY IS REPEATING ITSELF. WITH ONE DIFFERENCE BEING THAT IN THE FIRST 3-QUARTERS OF THE 20TH CENTURY BORROWERS WERE AT LEAST RECYCLING SOME OF THAT MONEY BACK INTO OUR ECONOMY, BUT NOW IT ALMOST ALL LEAVES THE ECONOMY TO FOREIGN MANUFACTURERS OR INTO INVESTORS’ AND/ OR RENTIERS’ POCKETS. IT IS LIKE THE OLE COMPANY TOWN WHERE THE WORKER TOOK HIS WAGES TO THE COMPANY STORE TO BUY HIS PROVISIONS BUT ALWAYS CAME UP SHORT AT THE END OF THE MONTH–DITTO FOR THE SHARECROPPER. THE POINT BEING IS THAT WAGE THROUGH WORK DOES NOT MAKE WEALTHY. CRIME AGAINST YOUR NEIGHBORS DOES.
SO ALL THOSE CHARTS AND GRAPHS ARE SHOWING A NATION OF PEOPLE SINKING INTO DEBT PEONAGE. WHICH IS JUST ANOTHER REASON WHY A BAIL-IN PROBABLY WON’T HAPPEN IN THIS COUNTRY BECAUSE IT IS ALREADY HAPPENING.
ANOTHER THING I’VE NOTICED IS THAT HOME EQUITY LOANS HAVE FALLEN OUT OF FAVOR. IS IT BECAUSE HOME OWNERS ARE POSITIONING THEMSELVES FOR A FUTURE BANKRUPTCY?
CONSIDERING THAT STUDENT LOANS ARE ONE OF THOSE TRICKS TO BOOST OF THE GDP, THE FACT THE NUMER OF DELIQUENCIES IS GROWING MUST BE DISCONCERTING TO SOMEONE IN WASHINGTON.
LESS THAN 2 YEARS AGO SERIOUSLY DELINQUENT MORTGAGES WERE AROUND $250 BILLION AND NOW THEY ARE AROUND $50 BILLION. WHAT HAPPENED TO THE $200 BILLION–AM I JUST LOOKING AT HOMEOWNER MORTGAGE OR INDUSTRIAL MORGTAGES AS WELL?
LOOKING AT THE MORTGAGE FORECLOSUER THOSE NUMBERS HAVE CLAMED DOWN. SO HOW MUCH OF THE “BUBBLE” MORTGAGES AND MORTGAGES THAT ARE IN EXCESS OF THE PROPERTY’S VALUE ARE YET TO FAIL?
(LOL) ARE BANKRUPTCIES DOWN BECAUSE OUR ECONOMIC SOCIETY IS NOW DIVIDED INTO 2 GROUPS:
(1) THOSE THAT HAVE NOTHING TO WORRY ABOUT.
(2) THOSE THAT ARE TOO POOR TO ACQUIRE DEBT AND THEREFORE CAN’T BENEFIT FROM BANKRUPTCY.
WHAT I WOULD BE INTERESTED IN KNOWING IS HOW MANY SMALL BUSINESSES AND COMMUNITY BANKS ARE BANKRUPT OR HEADING THAT WAY?