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Household debt falls, but student loans still weigh heavy

The US economy has been growing at a glacial pace for four years. And, by almost all tellings, the overhang of debt from the pre-crisis years is a big part of the reason. Americans have been paying down debt and building up savings.

But what’s really happening with household debt, and what does it augur for the future? The New York Fed’s latest quarterly report provides some of the best data:

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 Debt levels really are coming down. Total household debt fell $78 billion, or 0.7 percent, in the second quarter. Since US household debt peaked in the third quarter of 2008, Americans have reduced their burdens by $1.53 trillion, or 12 percent.

De-leveraging really is the story of the past few years. Household debt totaled 85 percent of gross domestic product in the third quarter of 2008, and is down to 67 percent in the second quarter this year.

 Mortgage debt is where the action is. There has been plenty of attention paid to credit card and student loan debt that’s weighing down Americans. But overall, housing-related debt dwarfs them. Add the $7.8 trillion in outstanding mortgage debt and another half a trillion dollars in home-equity lines of credit, and it’s more than 75 percent of all household debt.

Even more significant, it’s where all the movement is in the falling levels of consumer indebtedness. All other forms of household debt are up slightly since the third quarter of 2008, while the decline in debt levels can be chalked up entirely to mortgages and home-equity loans.

 All is not well with student loans. The rate of delinquent payments is highest for student loans and has risen over the past two years even as the proportion of people behind on their payments has fallen for most other types of debt.

It is a sign that high education costs combined with a tepid job market are causing strain. The proportion of seriously delinquent auto loans is lower than it was five years ago, and credit card and mortgage delinquency rates are only slightly higher. The student loan delinquency rate, though, has risen from 7.55 percent in the second quarter of 2008 to 10.9 percent in 2013.

 The swings are biggest in the bubble states. The decline in total household debt is most pronounced in some of the states where the biggest housing bubbles burst: Arizona, California, Florida, and Nevada. In Nevada, home to an epic housing bubble, per-capita debt has fallen to $49,350 from $88,580.

It is reasonable to assume the decline in mortgage debt in states with housing bubbles — in no small part the result of foreclosures, short sales, and restructurings — is a major part of the total decline in ’ debt.

  The rate of people who are more than 90 days behind on their mortgages is differs dramatically by where people live. In Nevada and Florida, the rates are 13.2 percent and 12.2 percent, respectively, but only 4.2 percent in Michigan.

That suggests it is still the extraordinary run-up in home prices of the past decade that drives debt delinquency today.

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