WASHINGTON - U.S. households, hit by declining home values and stock market losses, have cut back on their levels of debt for the first time on record as loans remain scarce amid what appears to be a deepening recession.
The Federal Reserve yesterday released its latest quarterly look at consumer and business finances, which showed that households reduced their debt levels at an annual rate of 0.8 percent in the July-to-September period, the first drop on record going back more than 50 years.
The stock market is down more than 40 percent this year, based on the Standard & Poor's 500 index, and the median price for an existing home is 11 percent lower than it was a year ago.
The decline in household debt levels is evidence of the severe credit squeeze that is occurring as banks, saddled by billions of dollars of losses on mortgage investments, have tightened lending standards and made it harder for people to get loans.
Mortgage debt fell at an annual rate of 2.4 percent in the third quarter, the largest quarterly decline on record. Mortgage debt had fallen at an annual rate of 0.1 percent in the second quarter. Those two quarterly declines are the first such drops in the Fed survey that dates back to 1952.
In past periods of tight credit, mortgage and total household debt had not declined, although the rate of growth for debt had usually slowed.
The Fed report also showed that households' net worth fell 4.7 percent in the third quarter to $56.5 trillion, reflecting the hit Americans are taking as the value of their homes and investments decline.
The drop in household net worth marked the fourth straight quarterly decline since total family net worth hit a record $63.6 trillion in the July-to-September quarter of 2007.