Household Debt Rises to New Highs in October : Economy: Surge in mortgage delinquencies, consumer borrowing sparks fears of hobbled ’96 growth.
Mortgage delinquencies rose in the third quarter to the highest level in more than two years, and consumer borrowing surged past the $1-trillion mark for the first time in October, reports released Thursday show. The reports prompted new warnings that growing household debt may hobble spending and U.S. economic growth next year.
The Mortgage Bankers Assn. of America said mortgage delinquencies rose to 4.24% of all loans in the third quarter, up from 4.15% in the second quarter. The delinquency rate was the highest since it hit 4.26% in the second quarter of 1993, it said.
The group also predicted that delinquencies, which occur when homeowners fall at least 30 days behind in their payments, could rise further in coming months.
Mortgage Bankers Assn. President Paul Reid said delinquency rates could continue to rise slightly if adjustable mortgages taken out previously are adjusted upward--so-called payment shock, resulting from a boom in refinancing.
When mortgages are refinanced, homeowners taking out adjustable-rate loans usually get a low introductory rate the first year and after that face an upward adjustment in the amount they pay.
Reid said delinquency rates may have reached a “cyclical bottom” and that this could be the start of an upward trend. “There’s more probability of delinquency rates going up than coming back down,” he said at a news conference.
In California, foreclosures have been running at record levels, according to Dataquick, a real estate service. During October, lenders began foreclosure proceedings on 12,904 homeowners--a 33.8% increase over the same month last year and the highest monthly number ever recorded.
David Lereah, the association’s chief economist, said a pattern of higher mortgage delinquencies could dampen consumer spending “to a small degree.”
The survey “does serve as a warning signal for future economic activity: It does tell us the pattern for delinquency rates is up rather than down,” Lereah said.
Delinquencies are rising even though mortgage rates are continuing to fall and are now at their lowest level in nearly two years.
The rate on 30-year fixed-rate mortgages fell to 7.18% this week from 7.33% the previous week, the Federal Home Loan Mortgage Corp. said Thursday. That was the lowest since it averaged 7.11% in February 1994.
Meanwhile, a larger-than-expected rise of $10.6 billion for October pushed net consumer installment credit to $1.004 trillion, the Fed said. That’s more than twice the $4.1-billion rise posted for September, which was originally reported as $5.4-billion .
Credit card use alone rose $5.1 billion in October after climbing by $1.4 billion the month before. The pace of auto borrowing also rose.
“Consumer credit cannot continue to increase at double-digit rates,” said Lynn Reaser, chief economist with First Interstate Bancorp in Los Angeles.
The Christmas shopping season isn’t likely to signal a slowdown in debt accumulation, as many tapped-out consumers push off payments until 1996, analysts said.
“What they’re spending is on credit,” said Ray Stone, managing director of Stone & McCarthy Research Associates in Princeton, N.J. “They might have some trouble when the bills come in.”
The report suggests that consumers “aren’t as gunshy as previously thought,” Reaser said. That sign of economic strength might “tend to give the Federal Reserve [Board] some pause” when its policy-setting committee meets Dec. 19 to consider interest rates, she said.
