U.S. households reduced their mortgage debt last quarter, even as borrowing for purposes other than housing rose for the first time since the fourth quarter of 2008, according to a survey by the Federal Reserve Bank of New York.
Consumer indebtedness totaled $11.4 trillion at the end of December, down $155 billion, or 1.3 percent, from the end of September, according to the New York Fed’s quarterly report on household debt and credit. In the third quarter, households cut debt by $110 billion. Consumers have reduced about $1.08 trillion of their debt since the peak in the third quarter of 2008, the New York Fed said today.
U.S. households, facing unemployment at 9 percent or higher for the past 21 months, have slashed debt and increased savings following the longest recession since the Great Depression, leaving them on sounder footing to renew borrowing. The deleveraging has pared consumer spending and slowed the economic recovery.
“We appear to be entering a gradual convalescence, as delinquencies begin to subside and some households begin to expand their borrowing again,” said New York Fed President William Dudley in the text of remarks in New York.
Consumers are improving their household finances, the report showed. Delinquency rates continued to decline, with 10.8 percent of outstanding debt in “some stage of delinquency,” down from 11.1 percent at the end of September and 12 percent a year earlier, according to the New York Fed. Household delinquent debt fell 14 percent from the previous year to $1.2 trillion, the survey said.
The number of inquiries for credit accounts, an indicator of consumer demand, rose for the third quarter in a row, the New York Fed said. The number of open credit card accounts rose to 380 million from 378 million. The total number of accounts ended its decline from a peak in the second quarter of 2008.
“We know that this phase is a gradual transition process, not a quick event, as households and banks slowly complete their painful adjustments,” Dudley said. “Once the adjustments are completed, households can consume more and regain their access to credit, and these developments help to support a more vigorous economic recovery.”
Delinquency and Foreclosure
Arizona, California, Florida and Nevada continued to have higher-than-average delinquency and foreclosure rates, according to the New York Fed. Nonetheless, the rates are falling faster than elsewhere in the country.
The amount of new bankruptcies fell to 500,000 from 522,000 in the third quarter. The number is still 2.7 percent higher than a year earlier, according to the New York Fed.
Mortgage originations rose 22 percent to $464 billion in the fourth quarter and are 54 percent higher than their low in the fourth quarter of 2008, the New York Fed said. They are about 40 percent below their average levels from 2003 to 2007.
The report is based on data compiled by the New York Fed’s Consumer Credit Panel, the statement said. The survey is drawn from a “nationally representative” 5 percent random survey of Equifax Inc. credit-report data, which encompass people with a Social Security number and a credit report.
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