Consumption falls as consumers break free of mortgage debt | Katonah NY Real Estate

In five years time, U.S. households reduced their total outstanding debt by $1.3 trillion as mortgage debts either paid off or were written down, researchers with the Federal Reserve Bank of New York claim in a new report.  

But all this credit wariness comes at a cost, according to the Fed study, which is titled ‘The Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit.’

“While household debt pay-down has helped improve household balance sheets, it has also likely contributed to slow consumption growth since the beginning of the recession,” the Fed researchers asserted.

Some of the more notable improvements occurred on the mortgage side of the lending spectrum. Fresh mortgage delinquencies reached a new low of $140 billion in the third-quarter of 2012.  However, a large amount of mortgage debt was also cleared through the foreclosure process and other transactions such as short sales in the five-year period following the financial crisis.