Over the past three months, the amount of debt in the US has increased overall as more forms of borrowing, particularly in the auto sector,Over the past three months, the amount of debt in the US has increased overall as a result of problems with various forms of borrowing, particularly in the auto industry. This is happening while overall challenges continue to be lower than they were prior to the Covid-19 pandemic’s outbreak in 2020.
In its most recent quarterly Household Debt and Credit Report, the New York Federal Reserve stated on Tuesday that the total amount of household debt increased by USD212 billion to USD17.5 trillion in the fourth quarter of 2023.an into difficulties.
According to the New York Fed, 3.1% of outstanding debt was delinquent in some way, which represents an increase of 0.0001% from the third quarter. However, compared to the final quarter of 2019 prior to the pandemic, overall delinquency rates were 1.6 percentage points lower.
The credit situation in an economy that has been expanding rapidly despite historically low unemployment and rising incomes is described in the New York Fed report. However, at the same time that inflation has been high, the US central bank has aggressively raised interest rates and maintained high short-term borrowing costs, making credit more expensive and difficult for borrowers to manage.
Some of those problems showed up as higher than average delinquency transition rates for all debt categories, with the exception of student loans, which went up at the end of 2023. Specifically, 7.7% of auto loans and 8.5% of credit card loans experienced defaults.Given that many borrowers had experienced a period of forbearance and forgiveness followed by a return to payments, student loan payments are currently in an unusual situation.
The historical lows for delinquency rates that were attained around the end of 2022 have been rising, and households had solid financial records prior to the pandemic, which were subsequently strengthened by trillions of dollars in government support.”This has meant that while credit growth has accelerated, debt servicing costs have risen and delinquency rates have increased, the broad credit picture of the U.S. is not alarming,” Gregory Daco, chief economist at Ernst & Young, wrote.
“What is more, with many homeowners locked in at low mortgage rates… The effects of the Fed’s historic tightening cycle have been much more muted than expected.”
CREDIT CARD DELINQUENCIES
In a blog post that accompanied the findings, the New York Fed stated that despite a reduction in government assistance initiatives, delinquency rates have been increasing since very low levels in 2021.According to researchers from the New York Fed, delinquency rates for auto loans have risen above pre-pandemic levels, “and the worsening appears to be broad-based”.”Loans opened during 2022 and 2023 are, so far, performing worse than loans opened in earlier years, perhaps because buyers during these years faced higher car prices and may have been pressed to borrow more, and at higher rates,” they stated.
Higher rates of delinquency “merit monitoring in the months ahead, particularly with the amplified distress shown by borrowers in lower-income areas.”According to the research, fourth-quarter auto loan balances increased by USD12 billion to USD1.61 trillion.According to the report, the total amount of new mortgage borrowing for housing increased by USD112 billion to USD12.25 trillion in the fourth quarter.In the final three months of 2023, credit card balances increased by USD50 billion to USD1.13 trillion, while student loan balances increased by USD2 billion to USD1.6 trillion.
The Federal Reserve Bank of New York reported that “serious credit card delinquencies increased across all age groups, notably with younger borrowers surpassing pre-pandemic levels”.It also noted that, for the seventh consecutive quarter, more mortgage loans were taken out using home equity lines, although the percentage of mortgage loans going into default remained historically low.