Americans' debt shrinks - 1st time ever

[simpletron]

Household worth drops by $2.8 trillion - Dec. 11, 2008

NEW YORK (CNNMoney.com) -- In a sign that Americans' spending habits are shifting, household debt fell for the first time ever, based on data going back to 1952.

According to a Federal Reserve report released Thursday, consumer debt fell an annualized $30 billion, or 0.8% in the third quarter to $13.91 trillion.

Americans saw their net worth decline by $2.8 trillion, or 4.7%, in the third quarter, dragged down by precipitous declines in home values and the stock market.

The net worth of U.S. households fell to $56.5 trillion at the end of September, according to the Federal Reserve's flow of funds report, which was released Thursday.

Home values declined by $347 billion in the quarter to $19.1 trillion. The net value of stock holdings for households fell $921.8 billion to $7.3 trillion.

you can find the complete report here:FRB: Z.1 Release--Flow of Funds Accounts of the United States--December 11, 2008

[disneysteve]

I wish that could all be attributed to spending habits changing, but I think a lot of it is due to lending habits changing. If people can't get the loans they are looking for, they are forced not to spend. They can't get that new car and have to hold on to the one they've got. They can't put that addition on the house or get the big screen TV or get the interest-free financing for the new furniture. Credit is tight so people have no choice but to not take on new debt. They can't get it if they want it.

[simpletron]

if you read the report, the comsumer credit still grew at an annual rate or 1.2%. this is less than the population growth rate, so per person comsumer credit shrunk.

but it was the home mortgages that actual shrunk at 2.4% per year. this is a farcry from the 10+% growth in the boom years (2001-2006). basically not very many people can or want to buy a house right now. or can take out home equity loans.

[disneysteve]

not very many people can or want to buy a house right now.

I think there are people who want to buy a house but can't for a couple of reasons. They may already own a home that they can't sell or are upside down on the current mortgage. Either that or they may not be able to get a loan. Places that were doing no downpayment loans have disappeared. Now, larger downpayments are required. Higher credit scores are required for the best rates. Same for car loans. There is a good article in Kiplingers this month talking about this. The average car downpayment has increased to 19% of purchase price. So folks are being forced by the credit market to actually save up before buying a car or house. Imagine that.