Household Debt Posts First-Ever Declineby Tim Manni
During the third quarter, American households paid down their debt levels for the first time in over 50 years, according to the Federal Reserve’s quarterly flow of funds report. Household debt shrank at an annualized rate of 0.75%, dropping from $13.94 trillion to $13.91 trillion, following a minimal increase in the second quarter. Home mortgage debt also shrank, but at an annualized rate of 2.5%:
The decline in household debt levels is evidence of the severe credit squeeze that is occurring as banks, saddled by billions of dollars of losses in mortgage debt, have tightened lending standards and made it harder for people to get loans.
In past periods of tight credit, mortgage and total household debt have never declined, although the debt growth usually slowed.
On the down side, “Household net worth—the difference between the value of assets and liabilities—was an estimated $56.5 trillion at the end of the third quarter of 2008, $2.8 trillion dollars less than in the preceding quarter,” according to the report.
The drop in household net worth — total assets such as homes and checking accounts minus liabilities like mortgages and credit-card debt — marked the fourth straight quarterly decline since total family net worth hit an all-time high of $63.6 trillion in the July-September quarter of 2007.