Aggregate household debt

Categories : Category Insights | economic indicators Published on : Jul 27 2017

Aggregate household debt saw unusually strong growth from 2001 to 2006, when it averaged 11.1% annual growth. Most of this strong growth came from the housing boom, as mortgage-standards were relaxed and subprime mortgages became exceedingly popular. As banks offered home loans to a larger portion of the population, outstanding debt held by the average consumer increased dramatically. Importantly, continuously rising house prices spurred more households to invest in real estate. In addition to the effects of the housing boom, the economy generally experienced strong growth over this period, which increased consumers’ confidence in their ability to repay large loans. Finally, the personal savings rate was at an all-time low during this period, meaning consumers felt comfortable going into debt to pay for large assets and projects (e.g. homes, cars, new businesses).

Growth in private debt began to slow in 2007, as house prices stopped rising and mortgage defaults increased. As defaults rose sharply in 2008, lending conditions tightened due to massive losses forcing banks to be more careful with their lending. Meanwhile, consumer confidence plummeted as individuals became more pessimistic about their financial futures in the face of the deteriorating economy, making them more likely to pay off their current debts rather accruing more. As a result, the tightening of debt by banks and consumers slowed the growth of new debt, while massive strings of mortgage defaults over 2008 and 2009 reduced the total amount of outstanding debt. Thus, while total debt increased 3.0% over 2008, all of this growth occurred during the first quarter; total debt fell over the subsequent three quarters. The drop in consumer debt continued in both 2011 and 2012, the first annual declines in aggregate debt in decades.

Aggregate household debt is rose each year from 2013 to 2015, albeit at more modest rates compared to the years leading up to the recession. Yet, in recent months over 2016, many economists have questioned whether household debt in the United States could again pose a problem in the years ahead. Excluding home equity lines of credit, data for each of the major debt categories provided by the Federal Reserve increased in the fourth quarter of 2015. Over 2015 and 2016, the Federal Reserve initiated their plans to gradually increase interest rates, which triggered households to take on more credit to lock low interest rates. Additionally, improving economic 2.6% to $15.2 trillion.


Over the five years to 2022, consumer debt markets will struggle with the same issues experienced over the past five years. Even though the economy will grow consistently, this expansion will be moderate and not cause dramatic improvements to consumer confidence compared to historic levels. In addition, if current law remains in place, new regulations on the banking sector will restrict banks’ ability to lend, preventing the debt growth seen prior to the recession. As a result of these various trends, aggregate household debt will grow moderately to 2022, averaging 3.6% annually over the next five years. Yet, expectations for increased interest rates in the quarters ahead could pose a potential problem, particularly for consumers with variable-rate loans.

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