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Tuesday, October 29, 2013

Debt Service Ratio

Via CR we find the Fed report on household debt Service ratio, just out today.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
Read more at http://www.calculatedriskblog.com/#BHACpsgJPrkXpjCY.99
The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
Read more at http://www.calculatedriskblog.com/#BHACpsgJPrkXpjCY.99
The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
Read more at http://www.calculatedriskblog.com/#BHACpsgJPrkXpjCY.99

This is based on estimates, so it's less exact than we would like, but as a time series ought to be illustrative.

This is just what I've been looking for, since I think of the debt burden in terms of ability to pay, and that is determined by the percentage of disposable income required for debt servicing.

CR shows a graph of DSR aggregated over homeowner and renters (red line) and mortgage and consumer obligations for homeowners only, reproduced below.  The red line is mislabeled on the CR graph as DSR for homeowners only.  It is corrected in the accompanying text, though.


Graph 1 from CR, Note misidentified Red Line

I took closer look at the red line, and added trend channels.  This is displayed in Graph 2.

Graph 2 - Household debt service payments as a percentage of disposable personal income; seasonally adjusted

I like to find a narrative that makes sense of the curve.  Since data before 1980 isn't included, we don't have earlier values.  But there is an immediate, though small drop, due to deleveraging during the early 80's double dip recession.  There is a sizable increase from '84 to '87, perhaps due to changing regulations and loosening lender requirements.  I  don't know what to make of the slight decline for the rest of the decade.  The next big deleveraging occurs starting in Q2 '91, after the '90-'91 recession had officially ended, and the bottom extends into 1994.  After that, it's good times and irrational exuberance, with only a slight down tic at the next recession, lasting from late '01 through mid '04, then up again to the ultimate top at the end of '07.  Then came the crash and a huge delveraging that might now start to level off at a new low around 9.8 to 9.9%.  The previous low of 10.43% is indicated by the purple horizontal line.

That's my attempt to understand the data.  What are your thoughts?




2 comments:

The Arthurian said...

"I don't know what to make of the slight decline for the rest of the decade."

Late '80s, early '90s was a general slowing in the growth of debt. May be relevant.

Debt service payments might trend in the same direction as debt growth rates. Perhaps with a lag. That's what this graph seems to show:

http://research.stlouisfed.org/fred2/graph/?g=nRB

Jazzbumpa said...

I downloaded your graph and displaced Liability level by 6 quarters. The contours line up almost perfectly then.

Interesting feature is that in the 80's liability was higher, while in that naughts debt service was higher, despite much lower interest rates.

I attribute this to slowing denominator growth over the period.

http://research.stlouisfed.org/fred2/graph/?g=nSa