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Heard on the Street: Americans: Less Debt, More Bills -- WSJ

24 Jun 2017 6:32 am
By Justin Lahart 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the US print edition of The Wall Street Journal (June 24, 2017).

Debt may not be weighing on consumers like it used to, but they have other burdens to bear.

Americans' finances are in the best shape they have been in years. As a group, U.S. households' debt-to-income and debt-to-asset ratios in the first quarter fell to their lowest levels since the early 2000s. A prolonged period of low rates have made that debt easier to bear: The Federal Reserve this week reported that households' overall debt-service ratio -- the share of after-tax income going toward debt payments -- are near historic lows.

But Americans face financial obligations beyond debt payments, such as rents and auto leases, and these are taking a bigger bite out of pay. Indeed, the Fed report shows the share of income going toward non-debt financial obligations is sitting near its highest level since the 1980s. It is a development that particularly for households at lower income levels may be crimping spending.

Commerce Department figures show the homeownership rate fell to its lowest levels in over a half-century in the years since the financial crisis, and it doesn't look likely to recover anytime soon. That has tightened the supply of rental units, pushing rents up 18% over the past five years, according to the Labor Department, even as inflation away from housing has been nearly nonexistent.

So while many people who own their homes have benefited from rock-bottom mortgage rates, renters' monthly nut has risen. Those renters tend to be poorer: The Fed's most recent survey of consumer finances, conducted in 2013, showed the median annual income of families that rented was $27,800 versus $63,400 for families that owned.

More people are leasing cars rather than taking out loans to buy them, leaving them with lower debt but still putting them on the hook for monthly payments. In May, 31.2% of new vehicles booked as sold by auto makers were financed via lease agreements versus 20.6% five years earlier, according to J.D. Power. Nor are leased cars merely the purview of the well-off: About a quarter of new car sales going to subprime and deep subprime borrowers are leased.

Then there are the payments that aren't included in the Fed's data on financial obligations, but that consumers are nevertheless obliged to pay. Mobile phone and internet plans, for example, have moved to the essential spending bucket for most households, and they come with a monthly bill. The Labor Department estimates that spending on information and information processing services -- a category that includes mobile telephone, landline telephone and internet services -- now counts for 3.2% of the average consumer's spending versus 2.3% in 2000.

For richer Americans who are benefiting from lower mortgage rates, buoyant incomes and rising asset prices, the rise in non-debt payments counts as an afterthought. But for the less well-off, it could count for plenty.

Write to Justin Lahart at justin.lahart@wsj.com
 

(END) Dow Jones Newswires

June 24, 2017 02:32 ET (06:32 GMT)

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