Interest rate hikes and an inflationary rally have pushed US household debt to a record $16.2 trillion. dollars in the second quarter of 2022 as credit card spending posted its biggest annual rise in more than 20 years, according to a report from the New York Fed, which warned late payments are rising amid heightened concerns about course of the economy.
In particular, household debt in the US jumped by $312 billion, or 2%, to $16.15 trillion. dollars at the end of the second quarter – increasing the balance of debts by about 2 trillion. dollars compared to pre-pandemic levels at the end of 2019.
In a statement, Joelle Scally of the New York Fed attributed the rise in debt to mortgage, car loan and credit card balances as the highest inflation in 40 years has driven up the prices of goods and services.
Although mortgage originations fell slightly in the second quarter – as higher interest rates curbed demand for home purchases – mortgage balances fueled much of the overall debt increase, rising by $207 billion to 11.4 trillion dollars at the end of June, according to the government.
Meanwhile, credit card debt balances jumped by $46 billion, or 13%, and are the second largest driver of rising US household debt.
As concerns about the state of the US economy intensify, Scally warned that the Federal Reserve is seeing little increase in defaults on all types of debt, with low-income borrowers particularly hard hit. However, she noted that the overall picture for household finances is strong.
In a possible sign that foreclosures are returning to “more typical levels,” about 35,000 people received foreclosures in the latest quarter, an increase of more than 45 percent compared to the first quarter of 2022, the data showed. Before the pandemic, new foreclosures averaged around 100,000 a quarter. Since then they have been moving at low levels due to the moratoriums that have suspended foreclosures.
The U.S. economy has rebounded rapidly since the pandemic crisis in 2020, and consumers have appeared resilient throughout — even as the Federal Reserve’s efforts to tame runaway inflation reignited fears of an impending recession. But on Tuesday, Fed analysts warned that the all-time lows of “red loans”… are coming to an end. “Debt balances are rising very quickly,” they commented, adding that certain categories of borrowers – particularly those on the lowest incomes – are now finding it difficult to be consistent in repaying their debts, with the “non-compliance” rate among the most financially vulnerable layers to climb to 2.5% from around 2% in 2021.