US household debt hits record $16.2 trillion as mortgages, credit card spending soars – delinquencies increase

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Buoyed by higher interest rates and inflation, total household debt rose to a record $16.2 trillion in the quarter as credit card spending hit its biggest annual spike in more than 20 years, the New York Federal Reserve reported Tuesday, warning. that delinquencies are also starting to rise. are rising amid growing concerns about the broader economy.

Key facts

Total household debt rose $312 billion, or 2%, to $16.15 trillion at the end of the second quarter — pushing balances about $2 trillion higher than at the end of 2019, before the Covid-19 pandemic, according to the NY Fed’s Quarterly Report on Household Debt.

In a statement, New York Fed’s Joelle Scally attributed the rising debt burden to “robust increases” in mortgage, car loan and credit card balances as high inflation pushes the prices of goods and services up at their fastest pace in 40 years.

While the number of new mortgages declined slightly in the second quarter as higher interest rates dampened home buying demand, mortgage balances accounted for much of the total debt increase, rising from $207 billion to $11.4 trillion at the end of June. the government said.

Meanwhile, credit card balances rose $46 billion, or 13%, representing the largest annual increase in more than 20 years and the second largest driver in total debt in the past quarter.

As concerns about the state of the economy mount, Scally warned that the Fed is seeing delinquencies rise “modestly” for all types of debt and particularly among low-income borrowers, although she also notes that household finances are “overdue”. generally appear to be in a strong position”.

In a potential sign that bankruptcies are beginning to return to “more typical levels,” about 35,000 people saw new bankruptcies on their credit reports, up more than 45% from the previous quarter, the government said; new quarterly executions averaged about 100,000 before the pandemic, but have remained low since then due to several moratoria banning the seizures.

key background

The economy recovered quickly from the Covid-19 recession in 2020, and consumers have remained fairly resilient throughout, even as the Fed’s efforts to fight inflation fuel fears of an impending recession. However, in a blog post on Tuesday, Fed researchers warned that the historically low default rates may be coming to an end. “Debt balances are growing rapidly,” they said, adding that some types of borrowers — especially those in lower-income areas — are beginning to have problems with their debts, with default rates among the lowest-income zip codes rising to 2.5. % from about 2% last year.

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9.1%. That was year-on-year inflation in June, which hit a worse-than-expected 40-year high after an unprecedented rise in gas prices.

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