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Home finance debt falls as total consumer debt declines 15%

Consumer debt levels would be much lower minus student loans

home loans chalk

The fight against personal debt continues with U.S. consumer debt down 15% from peak levels, according to Equifax's National Consumer Credit Trends Report.

This sharp drop excludes the negative influence of student debt, which continues to haunt consumer balance sheets, researchers from the credit bureau pointed out.

Still, the Equifax August report shows consumers gradually hacking away at their debt piles, especially on the housing finance front.

The firm's new report shows a 1.2% decline in the total balance of all first mortgages studied by Equifax, with $7.7 trillion in force.

Delinquencies on first-mortgages also continued to fall — with home loans 90 days or more past due or in foreclosure — declining 28% from a year ago, reaching a five-year low with only $300 billion mortgages classified as in this delinquent state, Equifax said. 

The total loan balance of home-equity revolving loans also reached $500.4 billion, a drop off of 7.4% from a year ago, and another five-year low.  

Meanwhile, the balance of severely delinquent home equity loans stood at less than $9 billion in August, down 25% from last year, while the total balance of home equity installment loans stood at $136.7 billion – a decline of 4.2% annually.

It seems delinquencies are down across most debt types, with 60-day plus delinquencies on auto loans falling 10% year-over-year to a rate of 1.14%. Meanwhile, bank credit card delinquencies fell 13% to a delinquency rate of 1.81% and retail credit card late payments edged down 0.9% to a late payment rate of 3.34%.

"Our data consistently indicates that the American consumer is being very disciplined in their use of credit. It's like they've gone on a debt-diet and they are really sticking to it, with modest increases in line with capacity to repay," said Equifax Chief Economist Amy Crews Cutts.

"If we exclude student loans, total consumer debt is down 15% from its peak and delinquency rates outside of home loans and student loans are back to pre-recession levels. Economic conditions are causing the lingering high default rates on student loans and mortgages, and hopefully we will see those improve more quickly in coming months."

Consumers had a tough climb back from the recession, but the mortgage finance side benefited significantly from the 2012-2013 housing recovery.

Recent research from William Emmons and Bryan Noeth of the Federal Reserve Bank of St. Louis shows real net worth per household up 63% from early 2009 levels when the nation sat knee deep in the recession.

And while student loans continue to weigh on housing demand, it's significant to note the youngest borrowers — or those most likely to possess student debt — also had the hardest time climbing out from the pit of the downturn.

Earlier this year, Emmons and Noeth published a separate report, concluding the average level of wealth for young famlies in 2010 (or homes headed by someone younger than 40) fell by 43.8%, or $68,070, from the averages reported in 2007.

As to what caused these wealth declines – the taking on of homeownership topped the list, the study suggested.

“In particular, we documented a large boom and bust in homeownership and mortgage borrowing among young families in recent years,” Emmons and Noeth wrote. “We found that, in an accounting sense, about three-quarters of the wealth decline for the average young family between 2007 and 2010 was due to its exposure to residential real estate.”

As of today, household balances are finally improving, suggesting a significant turnaround from 2010 and 2011 levels. The only major lingering concern is student debt.

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