Bangkok--23 Jan--Standard & Poor's
While the pace of borrowing has slowed in the past few years, Standard & Poor's Ratings Services expects American consumers to continue to run up record debt, both in absolute terms and relative to income, according to a recently published report.
Although the pace of borrowing has slowed since the 2001 recession, average household debt hit yet another record: 136% of after-tax income in third-quarter 2006. One saving grace of this increasing debt is the household financial environment. A record 76% of household borrowing is mortgage debt, which is considered "good" debt because it's used to acquire a (presumably) appreciating asset, compared to only 69% a decade ago.
Standard & Poor's expects household borrowing to slow as interest rates rise, but expects nonmortgage debt to increase. Loans not secured by real estate have been weak in recent years, in part because of the refinancing boom, which has led many borrowers to consolidate their debt into their mortgage.
Falling home prices and higher interest rates will increase delinquencies and foreclosures, but according to Standard & Poor's projection of sluggish economic growth, mild inflation, and modest increases in interest rates, the damage should be moderate.
The commentary article, "Cracks In The Foundation For Consumer Credit," was published Jan. 17, 2006, on RatingsDirect at www.ratingsdirect.com .
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected] . Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com ; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided.
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