U.S. household credit in most major categories has now fallen enough to allow a higher pace of overall economic growth
In a research note, the independent research firm says that the U.S. deleveraging cycle is at least half over (a consumer deleveraging cycle that typically follows a credit-driven housing boom and bust lasts between five and seven years). And so, it believes that the drag on growth from household deleveraging “should diminish as the cycle becomes more advanced.”
It reports that real house prices are no longer falling, and down payment rates have moved up. “This means that mortgage deleveraging should become more organic in nature, which, in turn, means that it will be less of a drag on spending,” it says. Additionally, consumer credit as a share of disposable income has already fallen to mid-1990s levels, it adds.
The only area of household debt that has continued to expand rapidly is student debt, BCA says, adding, “Given that the bulk of student debt is either held directly or guaranteed by the government, this is a worrying development for taxpayers.”
“Nonetheless, as a whole, there has been meaningful progress in household deleveraging,” it says. “This means that, assuming a positive outcome in Washington, a higher pace of growth in 2013 is more possible than at any other previous point in the recovery.”