Household debt is growing at the fastest pace in 15 years, amid soaring credit card use, according to a Federal Reserve report.
The US Federal Reserve (Fed) reported Tuesday that household debt rose at the fastest pace in 15 years in the third quarter, driven by surges in credit card use and mortgage balances. The total debt increased by $351 billion from July to September. This was the largest quarterly nominal increase since 2007 and pushed US household collective debt to an all-time high of $16.5 trillion. This represents an increase of 2.2% quarter-on-quarter and an increase of 8.3% year-on-year. This increase equates to an annual increase of $1.27 trillion, following a surge of $310 billion in the second quarter.
Debt has surged over the past year as inflation approaches its highest level in more than 40 years, rising interest rates, and strong consumer demand. The biggest contributors to this debt burden were mortgage balances, which increased $1 trillion year-on-year to $11.7 trillion, and credit card debt, which rose to $930 billion. Credit card balances are up more than 15% from the same period in 2021, the biggest annual growth in more than 20 years, according to the New York Fed, which published the report. The rise "leads the last 18 years of data," a group of Fed researchers said in a blog post on the central bank's website. Auto loan balances continued to grow in the third quarter of 2022, reflecting resilient consumer demand and rising prices.
Researchers at the New York Fed attribute the rise in credit cards to "very resilient" consumption, rising prices, and consumers using significant savings in their accounts. As balances grow, so do delinquencies. "Default rates are rising but remain low by historical levels, suggesting that consumers are managing their finances during a period of rising prices," the researchers wrote. Elsewhere in the report, the Federal Reserve said auto loan balances rose to $1.52 trillion and student loan debt fell to $1.57 trillion. Student loan debt is at its lowest since the second quarter of 2021, amid the Biden administration's lengthy leniency and efforts to forgive some student loan debt. Auto loan debt rose only marginally quarterly, but it increased 5.6% year-over-year. Mortgage balances continued to rise as interest rates surged and 30-year mortgage rates fluctuated by about 7%.
Despite a sharp decline in lending, total debt rose nearly 17% to $633 billion. Foreclosures remained low even as the pandemic-related moratorium expired. The delinquent student loan rate remained at about 4%.
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