The total amount of debt held by American households climbed in 2016 by the most in a decade, driven by broad and steady increases in credit card debt, auto and student loans, and a fourth-quarter surge to the highest amount of mortgage originations since before the financial crisis.
Total household debt climbed by $226 billion in the final three months of 2016, according to a report Thursday from the Federal Reserve Bank of New York. Total household debts are now just $99 billion shy of the all-time peak of $12.7 trillion set in the third quarter of 2008 just as the banking system began crashing down. The New York Fed estimates that debt is highly likely to set a new record in 2017.
“Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt,” said Wilbert van der Klaauw, an economist at the New York Fed.
Households shed nearly $1.5 trillion in housing debt between 2008 and 2013, through a combination of foreclosure and the grindingly slow pay down of debt. New mortgage originations plunged from $600 billion or $700 billion a quarter throughout 2006 and 2007 to less than $300 billion in 2013.
Loans to borrowers with credit scores below 620, considered subprime for their high risk of being unable to pay their debts, nearly disappeared from the market, falling by more than 90%. Subprime originations at the end of 2016 were more than 80% lower than in 2007.
But the biggest force driving household debts higher over the past decade has come from the rise of student loans and auto loans.