Recent changes to a measure of U.S. household debt service

Dynan, Karen E.; Johnson, Kathleen W.; Pence, Karen M.

doi:10.17016/bulletin.2003.89-10

Journal Article

Recent changes to a measure of U.S. household debt service

Abstract: Changes in levels of aggregate household debt in the United States may contain information about the current state of the nation's economy and may affect its future direction. A commonly used measure of household indebtedness is the household debt service ratio (formerly known as the household debt service burden), published since 1980 by the Board of Governors of the Federal Reserve System. Recent changes in financial markets have prompted a comprehensive revision of this statistic. This article describes the revision and introduces a new measure, the financial obligations ratio, which adds recurring obligations -- rent, auto leases, homeowners' insurance, and property taxes -- to the traditional calculation of the debt service ratio. In total, these revisions change the level of the debt service ratio but do not substantively alter its trajectory over time. The article also presents separate estimates of the financial obligations ratio for homeowners and renters. The ratio for homeowners, which may summarize the effects of the recent refinancing boom on the financial obligations of homeowners, has risen gradually over the past decade; the ratio for renters has risen more steeply. The flat contour of the homeowner ratio in recent quarters suggests that homeowners may have rebalanced their portfolios toward lower-cost mortgage debt during the recent period of economic weakness.

Keywords: Debt; Households;

JEL Classification: D14; E21; C81;

https://doi.org/10.17016/bulletin.2003.89-10