Friday, November 22, 2013

Household deleveraging stabilizes at record low levels

-by New Deal democrat

The Federal Reserve's report on household debt burdens was released a couple of weeks ago, covering the March - June quarter. 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.
Both measures declined slightly.  Since the last quarter of last year, they have stabilized at record low levels for both series.  I've combined the two measures into a single graph:

Photobucket Pictures, Images and Photos

Both debt service payments (blue line) and total household onligations (red line) are now less than at any time in the 33 year this data has been kept.

I long suspected that, before this cycle was over, households would set new all time lows for debt service. That has now come to pass.  I believe this new frugality will last for a generation,.