Bread and Circuses – US Households Increase Debt in Wealth Destroying Areas: Mortgage Debt Holds Steady since 2008 while Debt in Auto Loans, Student Loans, and Credit Cards Reach Record Levels.

Americans for the most part generate their wealth via owning homes. Yet many younger Americans are having a tough time buying a home because of a crowding out effect from investors largely from Wall Street. I’ll start this post with some telling data: In 2008 US households had about $10 trillion in mortgage debt. Today it is $10.49 trillion for an increase of 4.9% over 13 years. Non-housing debt which is tied to wealth destroying items like cars, credit cards, and education (for some degrees) went from $2.64 trillion in 2008 to $4.14 trillion in 2021 (a 56.8% increase in the same 13 years). This is an important data point to understand since not all debt is bad. Getting a mortgage might be good since it forces you to save into your home which generally increases in price over time. However a car, credit cards to buy “stuff”, or getting a degree in a non-competitive major for $55,000 a year is all “bad” debt. You essentially have an item that goes down in value over time. So let us look at this data carefully.

Mortgage Debt and Non-Mortgage Debt

This chart is rather telling as it looks at mortgage debt (for the most part good) and non-mortgage debt (largely wealth negative):

This chart is one of bread and circuses since 2008. In essence for 13 years Americans have not really increased their mortgage buying potential here (as evidence by lower homeownership by younger Americans). Yet at the same time, non-household debt has grown dramatically at this same period:

This is a bread and circuses narrative here – buy shiny things while time slips away. Student loan debt is crushing the balance sheet of younger American households. Of the $4.14 trillion non-household debt segment, the fastest growing segments are student loan debt and auto debt:

Student loan debt:          $1.58 trillion vs $0.53 trillion in 2008 (198% increase)

Auto loan debt:               $1.38 trillion vs $0.81 trillion in 2008 (70% increase)

So it is no shock that mortgage debt did the following:

Mortgage debt:               $10.4 trillion vs $10 trillion in 2008 (4.9% increase)

So you have incredible growth in non-wealth building debt areas and mortgage debt is relatively stuck. But how are homes being bought? You have a large number of investors many from Wall Street buying up property and leveraging low borrowing rates to essentially turn many Americans into long-term renters. With very few areas to chase yield, investors are plowing into homes which were once the main pathway for Americans to build some level of wealth. But where are young Americans building wealth today? Crypto? Meme stocks? Those areas do not seem sustainable (there is something like 10,000+ crypto coins). 13 years is a long-time to get the ball rolling and on a 30-year mortgage, this means that only 17 years more would be on that mortgage if someone bought 13 years ago. Instead, many have okay cars, student debt, and credit card debt but in the end, that is not wealth producing.

So while the stock market is at a record high (only half of Americans even own one stock) and real estate is at record levels (homeownership is down from record levels and weak for younger Americans) we are seeing where the money is flowing.

Still not convinced? Just look at income growth over a generation:

The only group that saw real inflation adjusted income growth is the top 20 percent (and more to the point, the top 5 percent). And you wonder why the middle class is being hollowed out.

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