For the first time since the financial crisis, U.S. families finally are feeling comfortable enough with their personal circumstances to finance spending with added debt.
The Federal Reserve Bank of New York reported Tuesday that total household debt grew in the third quarter, clearly establishing that over the course of the past year families have become less conservative and begun to rely more on credit.
“In light of these data, it appears that the deleveraging period has come to an end and households are borrowing more,” said Wilbert van der Klaauw, a senior vice president and economist at the New York Fed.
The news that more families are looking to borrow and spend will be welcome to top officials in the Obama administration and the Federal Reserve, both of whom have sought to reverse the damage to the credit system done by the financial crisis and boost consumer spending to aid the economic recovery.
Total household debt increased by $78 billion in the quarter to $11.7 trillion total, according to the New York Fed’s Household Debt and Credit Report. The report is based on data taken from the credit reporting agency Equifax.
Total consumer debt remains nearly a trillion dollars below the peak it reached in late 2008, when an unsustainable run-up in mortgage debt generated a financial crisis and the worst recession since the Great Depression.
Nevertheless, borrowing has picked up after bottoming out post-recession in 2013.
Over the course of the recovery, the pick-up in borrowing has been led by students taking out loans for college. Student debt hit $1.13 trillion in the third quarter, up by nearly $100 billion in the past year.
But borrowing is up across the board, as people are taking out more loans to buy houses, cars and consumer items through credit cards.
“[H]ouseholds have begun to use credit to supplement their cash flow again,” New York Fed researchers write in an analysis of debt data released alongside the report.
A major part of the post-financial crisis reduction in debt, the researchers note, has been through charge-offs of home loans, as lenders conclude that home owners are unlikely to pay and write off the loans. That’s still a factor, although such charge-offs have declined as the housing market has slowly healed and foreclosures have slowed.
But families have become less conservative over the course of 2014, according to the New York Fed’s analysis, and new mortgage originations increased to $337 billion in the third quarter. Combined with non-housing credit, that increase entails that U.S. families are now taking on more debt.
