Why a Leap in Big-Money Auto Loans Isn't Cause for Worry

NEW YORK (TheStreet) — The New York Federal Reserve shows that household debt is "essentially flat," dropping by $18 billion in the past quarter to 8.2% below a peak in the third quarter of 2008Most household debt categories are down (including mortgage debt) or up only slightly (including student loans and credit cards).

Auto loans, though, are at an eight-year high — up $30 billion on a quarter-to-quarter basis and by $91 billion on a yearly basis, with total outstanding auto loan debt at $905 billion.

"A slight decline in real estate related balances, consistent with broader housing market developments, contributed to a flat quarter for total outstanding household debt," said Donghoon Lee, senior economist at the New York Fed. "Meanwhile, we observe continued strength in the auto loan market with the largest volume of originations since 2006." 

The Federal Reserve numbers are big and rising fast, but nobody seems to be alarmed enough to utter the phrase "bubble."

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First of all, auto loan delinquency rates are fairly flat (up 3.3% for the quarter) compared with delinquency rates for student loans (up 11%) and credit cards (up 8.5%). That suggests the vast majority of auto loan consumers are having no trouble paying their bills.

But the trend bears watching, Fed officials say, as auto loan volumes haven risen for 13 straight quarters. Especially in the spotlight are so-called subprime auto loans extended to consumers with low credit scores (a 620 FICO score is a common cutoff for sub-prime loans.)

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