Aggregate household debt

Aggregate household debt exhibited strong growth from 2005 to 2008, in large part due to the housing boom, as mortgage-standards were relaxed and subprime mortgages became exceedingly popular. As banks offered home loans to a larger portion of the population, outstanding debt held by the average consumer increased dramatically. In addition, rising house prices spurred more households to invest in real estate. In addition to the effects of the housing boom, the economy generally experienced strong growth during this period, which increased consumers' confidence in their ability to repay large loans. The personal savings rate was at an all-time low during this period, meaning consumers felt more comfortable taking out larger loans for large assets and projects such as homes, cars and new businesses.

Growth in private debt began to slow in late 2008 and 2009, as house prices stopped rising and mortgage defaults increased. As defaults rose sharply in 2008, lending conditions tightened due to massive losses forcing banks to be more careful with their lending. Meanwhile, consumer confidence plummeted as individuals became more pessimistic about their financial futures at a time when the economy was deteriorating. Thus, total debt decreased by 2.6% in 2009, as individuals stopped taking out excessive loans. In 2010, aggregate household debt continued to fall, decreasing by 2.7% in that year alone. By that point, the prime rate had declined to 3.25%, its lowest level in over half a century, thus inhibiting the effects of interest compounding. The prime rate would remain at 3.25% until the end of 2015, coinciding with a decline in aggregate debt during the same period; aggregate household debt declined from nearly $15.5 trillion in 2010 to $14.5 trillion in 2015.

Yet, as the prime rate rose in 2016, in response to the encouraging economic recovery, aggregate household debt began to rise again, albeit sluggishly. The Federal Reserve initiated their plans to gradually increase interest rates in 2016, spurring some households to take on more credit to secure low interest rates. The Federal Reserve's policy of predictable interest rate hikes continued in 2017 and 2018. However, interest rates remained low historically and were flanked by stricter regulatory policies, which were drafted in response to the financial crisis nearly a decade earlier. Additionally, up until COVID-19 in 2020, the domestic unemployment rate fell, which put a larger number of individuals back to work and increased per capita disposable income. This made many households more confident in their financial outlook, and more willing to take on new debt. These factors, in conjunction, contributed to debt growth, which has subtly grown over the period.

The onset and spread of coronavirus in the US led to a massive shut down of many businesses throughout the US. This shut down led to the biggest spikes in US unemployment on record, with millions of US citizens filing for unemployment. Unlike 2009 following the financial crisis, US consumers took advantage of extremely low mortgage rates by buying homes and refinancing loans. This increased the aggregate mortgage balance and aggregate household debt. However, households reduced credit card debt in 2020 as they attempted to reduce nonessential spending. Additionally, student loans did not increase as interest rates froze as part of the CARES Act, which was passed in early 2020. However, these decreases were not sufficient to counteract the increase in the overall mortgage balance. As the economy reopened in 2021, revolving credit, such as credit cards, began to increase, which signaled that consumers were starting to feel better about their financial outlook. Soon after however, the Fed's focus shifted to rising inflation levels, which reached 40-year highs as a result of stimulus efforts, high consumer demand, wage growth and lingering supply-chain issues. Between March and November of 2022, the Federal reserve has aggressively raised the federal funds rate by three percentage points, reaching 3.75% to 4.00%. Meanwhile, the Biden Administration passed the Inflation Reduction Act of 2022, which aims to reduce the national deficit, lower prescription drug price levels and invest in domestic energy operations. Despite these efforts, inflation remains high, which continues to cut into household budgets and drive aggregate debt. The primary culprit is the increasing utilization of credit cards as consumers try to extend their budgets. Overall, aggregate household debt is forecast to increase at an annualized rate of 0.7% to $16.1 trillion over the five years to 2025.