By Ben Leubsdorf
Delinquency rates have been creeping higher for certain loans in a sign some Americans are under growing financial stress as the total debt held by U.S. households continues to hit new highs.
The Federal Reserve Bank of New York said Tuesday that household debt totaled $12.955 trillion last quarter, up 0.9% from the spring for a 13th straight quarterly increase. That was the most on record, though the figure wasn't adjusted for inflation or population growth.
As a share of U.S. economic output, household debt was about 66% last quarter versus a high of around 87% in early 2009.
"Over all, the picture looks healthier than it did a decade ago," said Adam Slater, lead economist at Oxford Economics.
Broad growth in borrowing over the summer months was the latest sign of consumer confidence as the U.S. economy enjoys the lowest unemployment rate in nearly 17 years. After years of deleveraging in the wake of the 2007-09 recession, household debt has risen more than 16% since the spring of 2013.
Some 4.9% of outstanding debt was delinquent as of Sept. 30, ticking up from three months earlier. Late-payment rates on the whole remain low, but flows into delinquency have risen in recent years for credit-card and auto debt.
One continued concern: The sharp rise in delinquency for auto loans made to subprime borrowers by auto-finance companies, usually through auto makers or dealers. The New York Fed said the low overall delinquency figure masks significant deterioration in those loans over the past few years.
The smaller number of subprime auto loans made by banks and credit unions have fared better, "in part reflecting differences in underwriting standards," said New York Fed economist Wilbert van der Klaauw.
But even with its growth in recent years, the volume of auto loans outstanding is dwarfed by housing-related debt, which is the major form of borrowing by American households.
The size of the subprime auto segment is "not insignificant, but it's a great deal lower than, say, subprime mortgages were in 2007," Mr. Slater said, and so "arguable unlikely to create the same kind of losses if it goes very bad."
New York Fed economists wrote on the bank's website Tuesday that "although the impact on the larger financial sector may be muted, there are over 23 million consumers who hold subprime auto loans. These consumers may find their credit reports further damaged after a default or encounter further financial difficulties after experiencing a car repossession."
In general, many new loans last quarter went to households with healthy credit. The median credit score for auto loans originated in the third quarter was 705, and the median credit score for new mortgage borrowers was 760.
Mortgages make up more than two-thirds of overall household debt and totaled $8.743 trillion in the third quarter, up $52 billion from the spring. Home-equity lines of credit, meanwhile, fell by $4 billion from the second quarter to $448 billion.
Auto loans outstanding jumped by $23 billion to $1.213 trillion. Auto makers in September and October reported strong sales partly because Texans, Floridians and others had to replace vehicles damaged by late-summer hurricanes.
Student loans rose by $13 billion to $1.357 trillion as the fall semester got under way at colleges and university across the nation. Credit-card debt was up by $24 billion to $808 billion.
The New York Fed's quarterly report on household debt and credit is based on data from the credit-ratings firm Equifax.
Write to Ben Leubsdorf at [email protected]