The Federal Reserve's report on household debt burdens was released last week, covering the July - September quarter of 2011. According to the bank,
The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.
With one important exception, both measures had declined almost relentlessly since the end of 2007 -- until now. Here is the updated graph:
Debt service payments (blue line, left scale) for the second quarter, which had been initially reported at 11.09%, were revised upward to 11.13%. In the third quarter they fell back to 11.09%. Total financial obligations (red line, right scale) for the second quarter, which had been initially reported at 16.09%. were revised upward to 16.15% and remained there for the third quarter.
While the debt service ratio, as presently reported, is still slowly declining, total financial obligations have completely stalled -- for a very interesting reason: as the Fed reported, total obligations for homeowners did continue to decrease, but rents have actually increased! Since the housing bust has pushed at least several million people out of houses and into rental units, for the last year rents have been rising. The YoY increased peaked in August at +4.6%, and as of Friday's November CPI report, is still +2.8%. Needless to say, this is going to continue to change the rent vs. own calculation in favor of ownership. If prospective home buyers become convinced that house prices are close to bottoming, that market could change quite swiftly.
I have no idea if this is merely a pause, or whether this will establish a multi-year bottom in household deleveraging. In the longer term, for a sustainable economic expansion, there must be adequate deleveraging by households, housing prices must bottom at least nominally as well as new housing construction begin to pick up, and the Oil choke collar must be broken. It does appear that very slowly all of those things are beginning to happen.