The New York Federal Reserve’s quarterly report contained some startling news: household debt in the US totals $12.58 trillion, which means Americans are in nearly as much debt now as they were at the peak of economic turmoil in 2008 when household debt was at a record high of $12.68 trillion. Between the third and fourth quarters of 2016 alone, debt increased by $226 billion.
Student loan debt is particularly alarming, as it increased by $31 billion in the fourth quarter of 2016. This isn’t particularly shocking, since college tuition has soared, but it’s a figure that many college graduates may not be in a position to pay off. Credit card debt is rising at a faster percentage, but whether people are living beyond their means, or just incurring more debt and managing can only be answered in the coming years.
While credit card debt and student loans are a factor, much of the debt is attributed to home and auto loans. Mortgage originations are at their highest levels since the Great Recession of 2008, and auto loan originations are at a record high, indicating that banks are more willing to extend credit. This might ring a bell to 2008, when banks overextended loans
While those numbers may spell out doomsday, it should be noted that the number of households in the US expands every year, therefore it can be assumed that debt would increase as well.  So considering that there were 125.82 million households in 2016 to 116.78 million in 2008 softens the blow a bit. Additionally, despite the increased debt, bankruptcies and foreclosures were at an 18-year low. Still, the huge spike in household debt in 2016 alone is a cause for concern, and the New York Fed doesn’t expect things to slow down in 2017, where we may just see record high levels of household debt.1
An investor cannot invest directly in an index. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.