Consumer Debt Skyrockets to $17 Trillion Despite Decline in Home Borrowing

In Q1 2023, total consumer debt in the U.S. reached a new high of $17.05 trillion, despite a significant decline in home borrowing, largely due to interest rate hikes, with delinquency rates also increasing across various debt categories.

May 15, 2023
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In Q1 2023, total consumer debt in the U.S. reached a new high of $17.05 trillion, despite a significant decline in home borrowing, largely due to interest rate hikes, with delinquency rates also increasing across various debt categories.

In the first quarter of 2023, total consumer debt reached an unprecedented peak, exceeding $17 trillion, despite a notable decline in home loan borrowings.

The New York Federal Reserve reported on Monday that the collective amount of borrowing across all sectors hit $17.05 trillion during the January to March period. This marked a near $150 billion increase, or 0.9%, pushing the total debt $2.9 trillion higher than the pre-pandemic figures recorded in 2019.

Interestingly, this surge happened even as new mortgage initiations, which include refinancing, amounted to just $323.5 billion, the smallest since the second quarter of 2014. This total was 35% less than in the last quarter of 2022 and 62% less than the same period the previous year.

The peak of new home loans was at $1.22 trillion in Q2 2021, but the numbers have been dwindling since, as a result of rising interest rates. Federal rate reductions had once lowered 30-year mortgage rates to a near 2.65% in January 2021.

However, now, with the central bank raising rates ten times, amounting to a total of 5 percentage points to counter inflation, the rates have climbed to around 6.4%, as per data from Fannie Mae. Consequently, this has pushed the total mortgage debt to $12.04 trillion, a 0.1 percentage point increase from the previous quarter.

Borrowers had capitalized on the lower rates for new home purchases and refinancing, but the latter's surge appears to have come to an end.

Andrew Haughwout, Director of Household and Public Policy Research at the New York Fed, stated in a report that the mortgage refinancing boom had concluded, but its effects would linger for years to come.

During the pandemic period, starting in March 2020, about 14 million mortgages were refinanced. Approximately 64% of these were "rate refinances," where homeowners sought to leverage lower borrowing costs. The New York Fed stated that these borrowers saved an average of around $220 per month.

Due to considerable equity drawdowns, mortgage borrowers managed to cut their annual payments by billions of dollars, which allowed them to allocate extra funds for expenditure or for paying off other debts, Haughwout explained.

Even though interest rates have increased, mortgage foreclosure rates remain low. However, delinquency rates for all debts are on the rise, with a 0.6 percentage point increase for credit cards to 6.5%, and a 0.2 percentage point increase for auto loans to 6.9%. The total delinquency rate rose by 0.2 percentage point to 3%, the highest since the third quarter of 2020.

Student loan debt slightly increased to $1.6 trillion, while auto loans also saw a small rise, reaching $1.56 trillion.


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