Monday, May 09, 2011

Household Debts Ratio Are Lowest Since 1990s

The chart above displays Federal Reserve data on: a) the quarterly household debt service ratio (red line), which is the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt; and b) the quarterly financial obligations ratio, which adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio (blue line).

The debt service ratio was 11.75% in the last quarter of 2010, which is the lowest ratio since the first quarter of 1998,  and the financial obligations ratio at 16.64% in Q4 2010 was the lowest since the first quarter of 1995.  

Explanations?  Thoughts?

13 Comments:

At 5/09/2011 11:41 AM, Blogger Michael Hoff said...

Fewer home owners? Folks paying off credit cards? Fewer people eligible for borrowing? Refinancing?

 
At 5/09/2011 11:45 AM, Blogger Luis H Arroyo said...

Deleveraging improving

 
At 5/09/2011 11:52 AM, Blogger morganovich said...

i suspect this has a great deal to do with foreclosures and cram downs.

every time there is a REO sale, this number drops.

non housing related debt declined less than 1%.

it's certainly not being driven by income...

 
At 5/09/2011 12:12 PM, Blogger Benjamin said...

Setting up a sustained bull market, domestically and globally.

Things are falling into place, albeit slowly.

 
At 5/09/2011 12:13 PM, Blogger Junkyard_hawg1985 said...

This is certainly good news. It is great that the people in the U.S. are reducing their debt loads.

Now if we could just get the politicians to do the same for public debt.

 
At 5/09/2011 1:01 PM, Blogger rjs said...

mostly due to foreclosures & credit card balance written of by the banks...

 
At 5/09/2011 1:08 PM, Blogger Matt Plomin said...

I wonder how to tease out how much of the household debt drop is the unwinding of the expansion in unsustainable lending to non-creditworthy borrowers, and how much is the result of a supply shortage in new debt issuance due to lenders re-calibrating thier risk models (and possibly over-shooting to de-risk).

And there's Morganovich's suspicion too. Could be simple bank asset destruction, but I'd look at tightening credit supply as a potential cause.

 
At 5/09/2011 1:10 PM, Blogger Matt Plomin said...

Net new issuance would be a good place to look to judge the direction that things are heading. It would be interesting to look at the creditworthiness of new secured and unsecured issuance.

 
At 5/09/2011 1:39 PM, Blogger Bill said...

Also, the banks will not make new loans.

 
At 5/09/2011 2:36 PM, Blogger PeakTrader said...

Losing your $60,000 job, house, car, credit cards, etc. will reduce monthly payments.

And then when you get your job at McDonalds for $20,000, you don't have to worry about a mortgage, a car payment, credit cards, etc.

 
At 5/09/2011 2:58 PM, Blogger Rufus II said...

Actually, people are reacting fairly rationally. Of the $6 Billion increae in Consumer Credit last month, about 80% was in Student Loans.

The Bubbas, and Bubbettes are out getting "new skills."

Mobs (and governments) may be irrational, but individuals are pretty sensible.

 
At 5/09/2011 3:39 PM, Blogger juandos said...

Refinancing housing?

Zillow: See the Worst Home Prices Drop Since 2008

 
At 5/09/2011 9:25 PM, Blogger Nick said...

Declining loan volumes, tighter credit, deleveraging, the refinancing boom that ended last year, foreclosures, charge offs, low demand for loans, rising interest rates, uncertainty, high unemployment - the usual suspects.

 

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