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US household debt picture improved again in Q4 [ClearOnMoney]
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US household debt picture improved again in Q4

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Commentary

US household debt picture improved again in Q4

24 Mar 2012 by Jim Fickett.

The Federal Reserve released the Flow of Funds and Financial Obligations Ratio data for Q4 earlier this month. Total liabilities for the household sector continued to come down, and are now more or less in-line with pre-housing-bubble trends:

This is, on the whole, good news for financial stability. However one must keep in mind that future default trends will be determined not only by the total amount of debt, but by the terms of the debt and who is holding it.

The financial obligations ratio, which measures debt service, rent, insurance payments and other fixed, financial obligations, as a percentage of disposable personal income, is at a normal-to-low level in view of history. Note that the ratio has improved for a few quarters for homeowners at the same time that it has worsened for renters. Presumably this is due to the Federal Reserve policy of directly manipulating mortgage rates.

Again the overall picture is encouraging, though that could change when interest rates eventually rise.

(For background and sources see the Reference page US household liabilities.)