NY Fed Report on Household Debt & Credit
I have been meaning to point to the NY Fed’s report on Household Debt. It is laden with all manner of good stuff. I thought this paragraph was significant:
For the first time since early 2006, total household delinquency rates declined in 2010Q2. As of June 30, 11.4% of outstanding debt was in some stage of delinquency, compared to 11.9% on March 31, and 11.2% a year ago. Currently about $1.3 trillion of consumer debt is delinquent and $986 billion is seriously delinquent (at least 90 days late or “severely derogatory”). Delinquent balances are now down 2.9% from a year ago, but serious delinquencies are up 3.1%.
I of course was enamored of the chart porn:
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Total Debt Balance and its Composition
Total Balance by Delinquency Status
New Seriously Delinquent Balances by Loan Type
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This one is probably the most informative of all:
Percent of Mortgage Debt 90+ Days Late by State
All charts sourced FRBNY Consumer Credit Panel
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Source:
QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT
FEDERAL RESERVE BANK OF NEW YORK
RESEARCH AND STATISTICS ● MICROECONOMIC AND REGIONAL STUDIES
August 2010
http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q22010.pdf
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August 25th, 2010 at 1:11 pm
Beautiful charts! Looks like the people who can pay down their debts are doing so at record rates, while those that can’t are just letting it all go.
It’s about damn time too.
August 25th, 2010 at 1:23 pm
Better be careful what you wish for Thor!
Richard Koo – A “Balance Sheet Recession”
http://www.youtube.com/watch?v=HaNxAzLKegU
http://www.businessinsider.com/richard-koo-recession-2010-4
August 25th, 2010 at 1:48 pm
@HelicopterBen
Koo’s view is overly macro. Yeah, debts being paid and/or written off means a contracting money supply, but that’s not really a bad thing. I like Koo and his books were well written (even if the first 3 chapters of holy grail dragged on) and he’s a sharp guy, but he’s going about everything backwards. What he aims to do is to–ignore the negative connotation of disease for a second–infect the patient by recreating the symptoms.
A growing money supply is a result of a growing economy, but artificially growing the money supply doesn’t necessarily create a growing economy. His Keynesian view for government stimulus means well and works from a bird’s eye view, but makes the GIGANTIC assumption that government spends the money in projects with a positive NPV.
If there’s anything we should have learned from the last 70 years, it’s that the government is awful at allocating capital. A contraction of the money supply is a GOOD thing. It means that bad debts are being purged and others are being paid down, and it means that when businesses and individuals are finally in a position where it makes sense to borrow, there will be ample room for the money supply to grow.
Monetary policy usually works because once the economy starts picking up again the fed can release assets to mop-up liquidity, but right now–as Koo eloquently notes–MP is impotent. Trying to replace it with FP is a disaster though, because its much harder for the government to eliminate that borrowing and spending once growth resumes, let alone start paying it back so as not to crowd out private-sector borrowing.
Everyone is acting like we have to operate with a maxed-out money supply at all times. We don’t. Slack is good.
August 25th, 2010 at 1:53 pm
@X: Great points, but I think we’ve also learned that the private sector can be awful at allocating capital as well, nearly as bad as the public sector. Mass idiocy is everywhere now.
August 25th, 2010 at 1:54 pm
RE: Percent of Mortgage Debt 90+ Days Late by State
Two things
NV- doubling down?
TX- What pushed things in the first quarter in TX?
RE: Total Balance by Delinquency Status
Current bars- suggest establishment of a stability trend?
August 25th, 2010 at 2:14 pm
Any thoughts on the slope of the 200 day MA turning negative?
August 25th, 2010 at 2:21 pm
X – Agree with Manny, great points.
August 25th, 2010 at 2:35 pm
RE: Total Balance by Delinquency Status
Three take-aways from the chart.
1) An astounding amount of debt, something like 1 in every 8 dollars, is not currently being serviced according to contract. This must be putting some gawdawful pressure on the cash flows of the debt holders. Wonder how much of that is in the “extend and pretend” category that tends to foretell future bankruptcies and closures, including FDIC takeovers?
2) On a Q-over-Q basis, overall delinquency appears to have shown its first improvement last quarter since 05:Q4. It appears that every category in 10:Q2 is about the same or better than last quarter. Still, four and a half years of deterioration in delinquencies… damn. One quarter doesn’t make a trend, but if we were seeing a bottom in this recession, doesn’t this chart shows what it would look like?
3) Apparently, 30-day lates are just sort of a constant level of noise in the system, at least over the charted period. It’s the more ugly stuff that starts to get sticky as times get worse.
August 25th, 2010 at 2:44 pm
Please compare the first few charts to a chart of subprime, prime, AltA and option ARM reset dates.
Not my site, but here’s the famous Agora capital chart of the second (coming) wave.
http://georgewashington2.blogspot.com/2010/01/second-wave-of-mortgage-defaults.html
August 25th, 2010 at 2:45 pm
Never confuse data with forecasts!
August 25th, 2010 at 3:00 pm
I wrote a slightly longer and a little more ranty response at my personal blog, which you can read here. If you just want the sound-bite, I’ve reproduced it below.
August 25th, 2010 at 3:01 pm
While it nice to see a slight improvement, I am not going to call this a trend based on a short period’s data for the simple reason is that I think this is a lagging indicator and the near term results were skewed by the ephemeral stimulus. Just as sales results for existing and new homes showed us today and yesterday, the stimulus distorted things positively but it’s effect was short lived and fixed none of the long-term ailments of the economy like job numbers and quality nor bank shadow inventory. I expect these numbers will resume deteriorating again from here until we actually have a recovery in job availability and quality (i.e. wages and benefits) and banks finally foreclose and write down houses. Not only has the fat lady not sung, she’s not even warming up in the wings yet.
August 25th, 2010 at 3:20 pm
Is today the right time to go long (until the third week of November)?
@Gator81, thank you for your thoughts etc on those items.
August 25th, 2010 at 3:33 pm
@NoKidding
That chart is way out of date. With the big drops in rates, I wouldn’t be surprised if a whole lot of those loans had been refinanced into fixed-rate loans. Additionally, it’s important to remember resets do not matter, because interest rates have been declining, so resets may actually result in smaller payments for borrowers. The problem is recasts where payments change as the loan starts to amortize. Like I said, an updated chart would be needed because we have no clue how many of those loans were modified to have the recast period pushed back, how many already defaulted, how many were paid and how many have been refinanced.
August 25th, 2010 at 3:44 pm
Absolutely X
“Fixing balance sheets is not a bad thing, it leads to strong businesses that can grow once their internal problems are fixed”
Do a little rework on the strategic defaulters and they can get back to the buisness of tossing more money away.
August 25th, 2010 at 4:02 pm
X-MTA
I also would like to see an update of that chart, but I don’t have it. I doubt many of those option arms have turned into fixed rates though.
Most of that 2nd wave is option arms. Why was there a massive wave of option arms scheduled to reset 2011?
I think you would agree:
1) A very small subset could have afforded what they bought/refied when they took the option arms.
2) Nearly none who could not afford a fixed 6.5% then could afford a fixed 5% rate now.
3) Nearly none of the property has increased in value.
4) A very small subset chose positive amortization.
5) Nearly none qualify for a refi now.
IOW, if the original chart was trustworthy, then the primary implication still stands.
The primary implication is that the crash will be a two-phase phenomenon, and we have not started phase 2 yet.
If the chart is crap, I have no leg to stand on. I’m trusting it to be in the ballpark.
August 25th, 2010 at 4:08 pm
NoKidding – I would think that the riskiest folks in the group about to reset, have already lost their homes in foreclosure.
If the chart being used was generated using number of these types of loans originated in the years shown, rather than how many are in these types of loans as of today, I would say it’s not very accurate. . . . Otherwise, we’re just guessing aren’t we?
August 25th, 2010 at 4:25 pm
Am I reading this right? The amount of household debt nearly TRIPLED in less than ten years, at a time when household incomes were basically stagnant? Holy hell.
August 25th, 2010 at 4:27 pm
NoKidding – to clarify, I wasn’t taking a position on the upcoming resets., just wondering what the current numbers look like. . .
August 25th, 2010 at 4:32 pm
I believe you’re reading that right, Boston. So now those folks not only have that debt to pay back (or default on), but they still have stagnating wages………..or no wages. Not a good situation. It still makes no sense to me how we’re going to see a real “recovery” when housing is clearly in the tank, and has historically been a driver of new jobs. Where are the new jobs going to come from this time? Anyone?
August 25th, 2010 at 6:36 pm
There is a Serious Anomaly in Credit Card delinquencies that are reported in the “New Seriously Delinquent Balances by Loan Type”. New credit card delinquencies have practically disappeared in 10:Q1. Even with strategic mortgage defaults in favor of paying off credit cards, I don’t believe this data.
August 25th, 2010 at 8:09 pm
So, everyone decided to pay their cresits cards in Q1?
August 25th, 2010 at 8:11 pm
That should have been credit cards, of course. I’ll go slither back under my rock…
August 25th, 2010 at 10:40 pm
:-)
August 26th, 2010 at 9:24 am
The strategy of paying down credit card debt is to qualify for another loan. Why? because they are getting ready to bail on their primary. Paying off all other debt helps their ratios.
August 26th, 2010 at 10:04 am
@NoKidding
@X on the MTA
NoKidding’s referenced chart is similar to the charts Hussman posted on his web site in March (http://hussmanfunds.com/wmc/wmc100315.htm). It will be interesting to see if a second wave is coming or not. We should find out in about 7 months as (projected) foreclosures typically occur with a 3 to 6 month lag from the time of the reset.
Another related topic – watching CNBC this morning, someone commented that even though 30-year mortgage rates were at historically low levels, the actual average 30-year mortage rate consumers were obtaining after closing costs was closer to 6 – 6.2% Can anyone confirm this comment and the data?