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    Evan Horowitz | Quick Study

    With financial crisis a distant memory, Americans load up on debt again

    Total household debt now stands at about 79 percent of household income. That's well above the 60 to 70 percent rates of the pre-bubble years.
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    Total household debt now stands at about 79 percent of household income. That's well above the 60 to 70 percent rates of the pre-bubble years.

    How’s this for a solution to our affordable housing crisis: Instead of building more units, or providing more rental vouchers, we could encourage low-income residents to borrow as much as they need to buy a house and hope it doesn’t feed a vicious debt cycle that weighs on family budgets for decades.

    A new program in Massachusetts would allow select first-time home buyers to borrow 100 percent of the money for home purchases, no down payment required. But if that sounds like a return to the bad old days of the housing bubble — when NINJA (no income, no job or assets) loans and zero-down mortgages fed a borrowing crisis that brought down the US financial system — there are some important differences.

    This program isn’t being offered by a private bank but instead by a quasi-public agency called MassHousing, which has a service-oriented mission and a strong track record of matching lower-income folks to housing loans they can afford.

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    There are no exploding rates or misleading terms — both key contributors to foreclosures during the crisis years.

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    Plus, these no-down-payment loans are limited to families with good credit and the best prospects of paying off their debts over time.

    Still, if the zero-down offer seems like an ominous sign, that may yet be true. Little by little, Americans are opening themselves once again to the risks of excessive debt.

    Look at the household savings rate. It had been creeping up for years, following the hard lessons of the financial crisis. But no longer. Personal savings have declined by half since the fall of 2015, so that instead of setting aside roughly 6 percent of their income, families are now saving around 3 percent.

    And while you might think such a sudden, sharp decline would set off economic alarms, the opposite is true. In many economic reports, this actually shows up as good news — because less saving means more consumer spending, which raises GDP, at least in the short term.

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    Debt levels have started climbing, as well. Total household debt now stands at about 79 percent of household income. That's well above the 60 to 70 percent rates of the pre-bubble years (though we have a ways to go before hitting the triple-digit debt levels from the peak of the recession.) Rising student loan debt is a driving factor, but mortgage debt has started ticking up, as well.

    Granted, today’s indebted families have one big advantage over their bubble-era peers: Interest rates are lower, which makes the loans easier to repay. A $500,000 mortgage in 2018 costs a lot less over 30 years than a similarly sized loan from 2003, when mortgage rates were closer to 6 percent.

    Yet even this boon may not last. Mortgage rates are creeping up and could start leaping if the Federal Reserve moves ahead with plans to raise interest rates three to four times this year. And the same risk applies to any variable-rate loans. When the Fed raises interest rates, the debt on your credit card, car loan, or student loan can suddenly get harder to repay.

    Figuring out exactly how the coming interest rate hikes will affect household debt is a vital question, because rising debt can feed a recession.

    Think of it this way: Households with too much debt and too little savings have little choice but to cut back on spending when interest rates rise and their monthly debt-service bills go up. When families spend less, businesses end up with less revenue, which means smaller Christmas bonuses, fewer productive investments, and a downward spiral of reduced spending and shrinking GDP.

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    And though we learned this lesson barely a decade ago, sunny economic times have a way of making even large debts seem manageably light.

    But keep alert for the menacing clouds, including any more announcements of zero-down mortgages and loans that look too good to be true.

    Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the naiton. He can be reached at evan.horowitz@globe.com. Follow him on Twitter @GlobeHorowitz.