US household debt soars to $16.5 trillion – an 8.3% rise in the fastest rise since 2008 – as inflation pushes Americans to tap lines of credit to afford rising prices
- U.S. household debt has risen 8.3% in the past year, the fastest pace since 2008
- Total household borrowing hit $16.51 trillion in the third quarter
- Credit card, mortgage and auto loan balances have all increased, according to the New York Fed
- But credit card borrowing grew fastest as new mortgages fell
- Inflation has forced some Americans to tap lines of credit to make ends meet
U.S. household debt is rising at the fastest rate since 2008, as inflation pushes Americans to borrow more with credit cards to make ends meet.
Total household borrowing reached $16.51 trillion in the third quarter, an increase of $351 billion from the previous quarter and an 8.3% jump from a year ago, the fastest annual increase in 14 years.
The Federal Reserve Bank of New York said in its Tuesday debt report that overall borrowing is $2.36 trillion higher than the level seen at the end of 2019, before the coronavirus pandemic hit and took hold. blurs the economy.
“Credit card, mortgage and auto loan balances continued to rise in the third quarter of 2022, reflecting a combination of robust consumer demand and higher prices,” said Donghoon Lee, an advisor in New York Fed research.
Total household borrowing reached $16.51 trillion in the third quarter, an increase of $351 billion from the previous quarter and an 8.3% jump from a year ago
Soaring inflation has pushed many Americans to tap lines of credit as they struggle to afford high car prices, more expensive homes and high gas prices
“However, new mortgage lending has slowed to pre-pandemic levels amid rising interest rates,” Lee added.
Soaring inflation has pushed many Americans to tap lines of credit as they struggle to afford high car prices, more expensive homes and high gas prices, the report notes.
Meanwhile, the volume of new mortgages fell in the second half of 2022, due to the sharp increase in the cost of borrowing as the Fed raises interest rates.
Rate hikes, which aim to keep inflation under control by cooling the economy, have dramatically increased the cost of paying off many types of borrowing, including home loans.
The new report says mortgage originations, which include refinancing of existing loans, fell $126 billion from the second quarter and rose to $633 billion in the third quarter.
The number of credit card accounts has grown rapidly, even as car loans and mortgages decline or shrink
Student loan delinquencies plunged during the pandemic when sweeping forbearance policies were put in place, but could rise again when payments resume next year
The New York Fed said current market activity to originate new mortgages resembles conditions seen before the pandemic hit.
He also said foreclosure rates remain low at the moment, which is a positive sign.
That said, overall mortgage debt in the third quarter increased by $282 billion and reached $11.67 trillion at the end of September, the New York Fed said.
Outstanding student debt stood at $1.57 trillion last quarter.
The rise in consumer debt occurred in an economy with low unemployment and high consumer demand among the worst inflation levels in 40 years.
The Fed sought to temper the surge in inflation with aggressive rate hikes, which significantly cooled activity in the housing market.
Among a selection of certain US states, California had the highest debt per capita
The composition of debt is seen in various US states, showing how high mortgage balances have pushed California debt above the rest of the pack
The rate hikes also raised fears that the Fed could plunge the economy into a sharp slowdown with major job losses.
Earlier this month, the Fed made a fourth consecutive 75 basis point interest rate hike and said its fight to bring inflation down to the U.S. central bank’s 2% target would require further increased borrowing costs.
However, the Fed has signaled that it may be approaching an inflection point in what has become the fastest rate hike cycle since the 1980s.
Traders are now pricing in a 91% chance of a 50 basis point rate hike at the December Fed meeting.
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