The State of Household Debt and Homeownership in America

On Monday, Fed President and CEO William C. Dudley discussed how household debt could reach its 2008 peak all over again later this year.

“Following a period of steady deleveraging that began during the Great Recession, households have gradually increased their borrowing during the past three years,” said Dudley. “Later this year, total household debt is expected to reach its previous peak, from the third quarter of 2008. Given past experience, one might wonder whether this level of indebtedness is sustainable or a reason for concern.”

Household debt reached a peak of $12.7 trillion in Q3 2008. Following the peak, debt declined for several years until recently. The past three years have seen a gradual increase in debt, reaching $12.6 trillion by Q4 2016. Borrowers have shifted away from housing-related debt into student loan and auto debt. While housing-related debt remains at $1 trillion below peak level, auto loan and student loan debt has increased by $367 billion and $671 billion, respectively. The Fed’s briefing ended with some notes on the state of student loans.

The New York Fed noted that student loan debt has begun to level off, though still remain at a high level. Payment progress is particularly slow for those who borrowed more. Despite the debt, The New York Fed still found that those with higher degrees are still more likely to become homeowners than those without. The gap grows even more with age.

Those with bachelor’s degrees and no debt become even more likely to own a home with age. That number increases even more for higher degrees. Even those who just attend college and don’t graduate, and still hold debt, are more likely to become homeowners.