The Federal Reserve has issued its fourth quarter 2018 report on household debt revealing some new trends in consumer debt.
The first quarter of 2018 saw household debt rise to $13.5 trillion, the 18th quarter of debt increase since the debt pay down following the Great Recession reached it's low point of about $11 trillion. Overall household debt has doubled since 2003, but the largest portion of the increase occurred between 2003 and 2009 during the asset bubble leading up to the Great Recession. Taking inflation into account, family debt has dropped about 9 percent in the last 10 years.
Home mortgages, a major cause of the pre-recession asset bubble, had doubled from 2003 to 2009, but were paid down overall from 2009 to 2014 and have still not reached their 2009 levels. In the fourth quarter of 2018 mortgage originations actually fell, from $445 billion to $401 billion. The decrease was blamed on higher home prices and higher interest rates. Many think that the housing market will soften further in 2019. However, we do not believe that homes are overvalued and we also expect continued increases in interest. So do not delay any home purchase plans looking for lower prices or interest rates. Buy now while you can.
Another area of interest is auto loans. Total auto loans in 2018 were 584 billion, a record, and auto sales continue strong. This is a sign of a good economy, but there are some warning signs in the area of auto loan defaults. While still not up to the peak in the Great recession, delinquencies have been rising since 2014 and now sit at about 4.5 percent. Among low credit households the rate is 8 percent. There may be a tightening of credit standards ahead, so if you are looking to finance a car, this may be the time to do it.
We do not agree with those commentators who say that you should not incur any debt to buy a home or a car. A home mortgage allows you to purchase a home and began receiving its appreciation in value, converting your payments into equity. As a homeowner, you have more rights then a tenant, so your debt puts you in less bondage than a lease would. Similarly, a car loan allows you to work and live where you want, increasing your prosperity levels.
Just don't bite off more than you can chew.
Ron Allen is a Christian businessman, CPA and author who serves in local, national and international ministries, spreading a message of reconciliation to God, to men and between believers. He is founder of the International Star Bible Society, telling how the heavens declare the glory of God; the Emancipation Network, which helps people escape from financial bondage; and co-founder with his wife, Pat, of Corporate Prayer Resources, dedicated to helping intercessors.
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