May 14 (Bloomberg) -- U.S. households reduced debt during the first quarter by 1 percent to the lowest level since 2006, resuming a deleveraging trend in the wake of the financial crisis, according to the Federal Reserve Bank of New York.
Household debt fell to $11.2 trillion in the first quarter compared with a peak burden of $12.7 trillion in the third quarter of 2008. Consumers reduced debt by $110 billion after increasing their borrowing by $31 billion in the fourth quarter of 2012, while delinquency rates fell “across the board,” the Fed district bank said in a statement. Student debt bucked the trend, rising to a record $986 billion.
“Household deleveraging has resumed its previous trajectory,” Wilbert van der Klaauw, a senior vice president and economist at the New York Fed, said today in a statement. “We’ll look to see if this pace of debt reduction and delinquency improvements will persist.”
Consumers are repairing their post-crisis balance sheets as the Fed tries to spur the expansion and enliven the job market by holding the main interest rate at zero and buying $85 billion in bonds every month. More than four years of record stimulus have yet to reignite household borrowing, and the unemployment rate has exceeded 7 percent since December 2008.
Households in the first quarter improved their debt payment patterns as delinquency rates on mortgages fell to 5.4 percent from 5.6 percent, on home equity loans to 3.2 percent from 3.5 percent, on credit cards to 10.2 percent from 10.6 percent and on student loans to 11.2 percent from 11.7 percent, according to the New York Fed.
“We’re much closer to the end of the deleveraging cycle than the beginning,” said Gennadiy Goldberg, U.S. strategist at TD Securities Inc. in New York. “If the housing recovery continues at the current pace, deleveraging could end very soon.”
Falling delinquencies have helped bolster bank shares. The KBW Bank Index of 24 financial institutions has risen 32 percent during the past year compared with a 23 percent gain for the Standard & Poor’s 500 Index. The S&P 500 rose 1 percent to 1,647.72 at 12:10 p.m. in New York trading.
Mortgage debt led the decline, falling to $7.93 trillion from $8.03 trillion, along with credit card balances, which decreased $19 billion to $660 billion, according to the Fed regional bank.
The largest increase in lending occurred in student loans, according to the New York Fed survey. Total student debt rose to $986 billion in the first quarter from $966 billion in the fourth quarter of last year.
The statistics are based on figures from a nationally representative random sample provided by the Equifax Inc. credit bureau.
Student lending has surpassed credit cards, auto loans and home equity loans in recent years and is now the largest form of consumer debt after mortgages.
A panel of bankers that advise the Fed warned last year that patterns in student lending resemble the mortgage crisis that helped lead to the worst recession since the Great Depression.
“Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis,” the Federal Advisory Council said in minutes of a Feb. 3, 2012 meeting, that were obtained by Bloomberg News through a Freedom of Information Act request.
The bankers said student lending shares features of the housing crisis including, “significant growth of subsidized lending in pursuit of a social good.” In this case, the focus is on higher education rather than expanded home ownership.
The deleveraging coincided with bank easing on the standards and terms for many types of loans, according to a separate quarterly Fed survey of senior loan officers. Demand for business loans increased, while “on the household side, the survey results were more mixed,” the Fed said last week in a description of the April 2-16 survey.
Banks in the U.S. have boosted lending as the economy gains strength. The total value of loans at U.S. banks climbed 3.7 percent in the past year to $7.3 trillion in April, according to a separate Fed report on the assets and liabilities of commercial banks. Lending to businesses has led the way, with commercial and industrial loans climbing to $1.55 trillion in April, an increase of 10 percent from a year earlier.
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