Good news! Americans may be done deleveraging

December 9, 2013

Twenty-one quarters. That's a bit more than five years. And that's how long it has been since the amount of home mortgage debt owed by American households rose in a quarter.

The increase in mortgage debt in the third quarter of 2013, revealed in new data out from the Federal Reserve on Monday, isn't anything epic. The $10.3 billion increase is only about one-tenth of 1 percent. Personal income rose more than that in the quarter, which means the ratio of mortgage debt to incomes continued its long, gradual decline. This is actually one of the areas of progress in the economy over the last few years: A reduction in the burden of consumer debts:


Source: Federal Reserve and BEA

The decline in debt levels has a number of causes. Households have straight-up paid down mortgages and credit card balances during and since the recession. There have also been foreclosures and write-downs, as lenders accept that some credit extended in the pre-recession period will never be paid back. And, importantly, with credit standards tighter than they were in 2007 and before, plenty of people who in an earlier era would have taken out additional debts haven't been able to.

So on the debt side of Americans' household balance sheets, things are looking good. Debt burdens continue to drift downward as a percentage of income even as more mortgage and other lending starts to take place. But the major deleveraging that has held back consumer spending for the last five years seems to have largely run its course.

That's the liabilities side of Americans' household balance sheet. But what about their assets? Here the story is even better.

Total assets for households and nonprofits are up more than $2 trillion in the third quarter, a 2.3 percent rise. About one fifth of that ($429 billion) is due to higher real estate values, which are broadly held by middle and upper income Americans. Another $917 billion, a 5.3 percent increase, was attributable to holdings of stocks and mutual funds, reflecting the runup in global stock markets over the last few months.

Add it all up, and the net worth of American households and nonprofits rose to $77.3 trillion in the third quarter, from $69.6 trillion a year earlier and $59 trillion in 2009. Those are huge moves, driven by both falling debt burdens and a rising value of assets. Nobody would argue that the U.S. economy is in great shape. But Americans' household finances look a great deal better than they did just a few years ago.

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Brad Plumer · December 9, 2013