For Americans who believe that all is well with the economy, it may come as a rude shock to know that their household debt may be the cause of the trouble. The Federal Reserve Bank New York has made an official announcement that debt balances zoomed quite drastically in the last part of 2016. The last quarter of the year posted a rather shocking $12.58 trillion in household debt, says the newest quarterly report from the Fed.
Nearing the recession time debt
In a record that is best not achieved, the household debt almost touched the number posted during the worst of the recession way back in 2008. In Q4 of 2016, overall debt rose by some $225 billion, taking it to a point just below the peak that we witnessed in the recession days, during the Q3 of 2008.
The main reasons for rising debt
Tracing back the numbers, it becomes evident that most people took on increased debt through home purchases or to refinance their home mortgage. In the fourth quarter of 2016 alone, mortgages contributed to nearly $620 billion of the overall debt taken on. Interestingly, this was the most that people borrowed for this purpose since the days of the recession. While this might be great news for the real estate and housing sector, since it indicates confidence, it is not good news for the public to know that household debt is rising at an alarming rate.
Auto loans add to the numbers
Real estate is not the only culprit in this scenario because auto loans have posted steady increases during the same period as well. While car manufacturers enjoyed the spurt in sales, the increase in a number of transactions also resulted in a record number of auto loans being generated. The interesting trend among both new home loans and new auto loans is that it was borrowers with solid credentials that accounted for the majority of loans.
Experts believe that the debt is only going to grow some more in the coming months and they also point out that while home loans may be the biggest contributor to debt, student loans play a significant role in keeping household debts high. And this debt has only risen on a consistent basis over the past years, overtaking both auto loans and credit cards to become a major cause of household debt at present.