Oregon Office of Economic Analysis

One very important economic measure is that of household debt (relative to income) and it’s impact on consumer spending and economic activity more broadly. As economists have discussed quite a bit in recent years, the typical American household became overburdened by their debt during the housing boom. This became even more apparent once the bust came, with falling employment and income. As our office has pointed out previously, the process of household deleveraging has been underway both nationally and here in Oregon, even at the county level. Unfortunately the underlying debt data by state is not readily available like it is at the national level. However, our friends at the Federal Reserve Bank of New York have quietly rolled out an update to their data for 2013q4. Below is a snapshot of this household debt, relative to income for each state. It is important to point out that about three-quarters of household debt is mortgage debt. Thus states with higher home prices, or a higher share of households with a mortgage, tend to have higher overall debt burdens, even relative to income.

More importantly, how have these numbers changed over the years? Are households across the country really back at sustainable levels of debt? A couple of points. First, yes, household debt overall and relative to income is lower than during the housing bubble era. Second, much of this improvement has come in mortgage debt, however it is not like households have made double payments in recent years. We know a significant portion of the decline is due to foreclosures. The silver lining to losing the house is you also lose the debt. Third, with very low interest rates the costs of financing debts is also very low. The Fed’s debt service and financial obligation ratios are at or near all-time lows. So the effective level of debt, measured by what a household has to pay to finance it, is even lower today than the headline numbers indicate.

All told, after falling for five straight years, the debt to income ratio in the typical state held steady in 2013. In fact, more states’ debt to income ratio increased by more than 1 percentage point than decreased by a similar amount for the first time since 2007. These new, state level numbers do indicate and back up the national trends. It does appear that the process of household deleveraging has ended.