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Twin Trillion-Dollar Bubbles Prompt Dramatic Rise In Non-Mortgage Debt

Don’t look now, but the US is staring down not one but two trillion-dollar bubbles, both of which have been documented here extensively. 

The first is the US auto loan bubble which has ballooned to $900 billion on the back of loose underwriting standards. Don’t believe easy credit is behind the inexorable rise in auto loan debt? Consider the following Q1 statistics from Experian which we never tire of showing:

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

Sitting behind the auto lending boom is Wall Street’s securitization machine which will churn out around $100 billion in auto loan-backed paper this year (for perspective, that accounts for around half of total projected consumer ABS issuance). The longer the Fed-driven hunt for yield persists, the more demand they’ll be for this paper and the more demand there is, the easier it will be to get a car loan and larger the bubble will become. 

Meanwhile, the nation’s student debt bubble has reached epic proportions, with students and former students laboring (or perhaps "not laboring" is more appropriate given what we know about how difficult it is for degreed millennials to find good jobs) under a debt burden that averages $35,000 per student and totals a staggering $1.2 trillion in aggregate. As we’ve detailed exhaustively, debt service payments on these loans are causing delays in household formation and driving up demand for rentals in a market that’s already red hot thanks to the fact that the collapse of the housing bubble turned a nation of homeowners into a nation of renters. 

Considering all of the above, we weren’t at all surprised to learn that US households’ non-mortgage debt is soaring and the two main drivers are student loan debt and auto loans. Here’s more from HousingWire:

Black Knight Financial Services analyzed U.S. mortgage holders’ levels of non-mortgage-related debt and found those levels are at their highest in over 10 years.

 

What we’ve found is that mortgage holders today are carrying more non-mortgage debt than at any point in the past 10 years, with an average of $25,000 per borrower. That’s $1,400 more on average than one year ago, and nearly $2,600 more than in 2011,” he said. “The primary driver of this increase is a rise in auto-related debt, which accounted for 81% of the overall non-mortgage debt increase over the past four years. We also noticed a clear correlation between non-mortgage debt and borrowers inquiring about a new mortgage, with those who have recent mortgage inquiries on their credit reports carrying nearly 40% more debt than borrowers who do not.”

 

Black Knight found that the student loan debt of U.S. mortgage holders is at all-time high: 15% of mortgage holders are carrying student loan debt, with average balances of nearly $35,000. The average student loan debt for all mortgages has more than doubled since 2006, and the share of mortgage holders carrying that debt has increased by 44% over that 9-year span.

Here are some of the key findings:

  • Black Knight found that U.S. mortgage holders are carrying the most non-mortgage debt they have - an average of approximately $25,000 each - in over 10 years
  • Student loan debt among mortgage holders is at an all time high 
  • Among mortgage holders, student loan debt has increased by roughly 56% since 2006, to an average balance of nearly $35,000 
  • The share of borrowers carrying student loan debt has increased by 44% in that same time span
  • 48% of mortgage holders have automobile debt as well
  • Auto debt accounted for 81% of the increase in overall non-mortgage debt among mortgage holders over the past 4 years
  • Nearly 15% of those with homes in the lowest 20% of values are still underwater, compared to just 1.7% of those in the top 20%
  • Some 5.7 million borrowers lack enough equity in their homes to cover the cost to sell them