In the aftermath of the housing collapse, U.S. consumers did something they hadn’t done in years: they drastically reduced their debt loads. After peaking in 2008 at just over $11.5 trillion, household debt (the sum of mortgages, home equity lines of credit, auto loans, and credit card debt) was whittled down to under $10 trillion by the second quarter of 2013. But that, apparently, is when the deleveraging stopped. Over the past two years, household debt has once again been on the rise. But here’s the good news: that uptick bodes well for the economy.
Auto loans rebounded first in 2010, followed by credit cards in 2011, and, finally, mortgages in 2013. As of mid-2015, total U.S. household debt sat just under $10.5 trillion. But the encouraging news isn’t simply that borrowing is up.—it’s more about who, exactly, is doing the borrowing.
To answer that question, Credit Suisse economists James Sweeney, Zoltan Pozsar, and Xiao Cui recently created a four-box matrix of U.S. borrowers. The first thing they did was split the country into two parts—on one side, the five bubble states that were hit hardest by the crisis (California, Nevada, Arizona, Florida, and Georgia), and on the other, the 45 that weren’t. Then they separated those groups into two parts again: prime borrowers (credit scores above 659) and subprime borrowers.