US household financial obligations ratio remains near long-term average

25 Jun 2012 by Jim Fickett.

On Friday the Federal Reserve released data on the household financial obligations ratio through Q1. It is interesting that, despite all the changes in debt levels and financial climate over the last three decades, the FOR (the ratio of rent, house payments, other debt service payments, and other fixed financial obligations to disposable personal income) has remained in a fairly narrow range, for both homeowners and renters:

This is despite the fact that overall household debt, again as a fraction of disposable personal income, has almost doubled over those decades:

This has only been possible because interest rates have been in a falling trend over most of that period. It may be possible to hold interest rates down for quite some time. But one of these days, if Congress keeps running large deficits, the US will have its Greek moment, and servicing debt will cost much more. What happens to household debt at that time depends on which segment of the population is holding the majority of the debt, and whether they can afford increased payments. But it is a good bet that a rise in interest rates will trigger another large round of deleveraging.