Steady household spending and record high credit card debt held by Americans reveals an uncertain post-pandemic consumer landscape.
The Federal Reserve Bank of New York’s Center for Microeconomic Data released its Quarterly Report on Household Debt and Credit on May 15th, shedding further light on the increasingly tenuous state of consumer debt in the United States as of May.
The report highlights an increase in total household debt during the first quarter of the year, reaching $17.05 trillion—an uptick of $148 billion (0.9%). Notably, this amount is $2.9 trillion higher than pre-pandemic recession levels at the end of 2019. The report draws on survey data from the Consumer Credit Panel.
In the housing sector, mortgage balances experienced a modest rise of $121 billion in Q1 2023, bringing the total to $12.04 trillion by the end of March. Credit card balances remained unchanged during the first quarter, standing at a record high of $986 billion. Auto loan balances defied the typical trend of declines in first quarters, increasing by $10 billion. Student loan balances also saw a slight increase, reaching $1.60 trillion. Additionally, other balances, which encompass retail cards and other consumer loans, grew by $5 billion. Overall, non-housing balances grew by $24 billion.
The report reveals a notable decline in mortgage originations, including refinances, which dropped sharply to $324 billion—the lowest level seen since 2014. The volume of newly originated auto loans amounted to $162 billion, a reduction from the pandemic-era highs but still above pre-Covid volumes. Aggregate credit card limits increased by $119 billion, representing a 2.7% rise from Q4 2022 levels. Home equity lines of credit saw an increase of $9 billion in the first quarter.
The report highlights a concerning trend of delinquency rates for various debt types. The delinquency transition rate for credit cards and auto loans increased by 0.6 and 0.2 percentage points, respectively, nearing or surpassing pre-pandemic levels.
The New York Fed’s accompanying Liberty Street Economics blog post delves into the impact of housing equity and mortgage refinancing on consumer spending. During the pandemic refinancing boom, approximately 14 million mortgages were refinanced, resulting in the extraction of $430 billion in home equity through cash-out refinances. About 64% of these mortgages were rate refinances, leading to an average monthly payment reduction of $220 for borrowers.
Andrew Haughwout, Director of Household and Public Policy Research at the New York Fed, emphasized the lasting impact of the mortgage refinancing boom, stating, “The mortgage refinancing boom is over, but its impact will be seen for decades to come.” Haughwout noted that significant equity drawdowns enabled mortgage borrowers to reduce their annual payments by tens of billions of dollars, providing additional funds for spending or paying down other debt categories.
The Quarterly Report summarizes key takeaways, including notable trends in housing debt and student loans. While newly originated mortgage debt in Q1 2023 amounted to $324 billion, both refinance and purchase mortgage originations significantly declined due to the waning refinance boom and a slowdown in home sales. New foreclosures remained low, with approximately 35,000 individuals having new foreclosure notations on their credit reports—similar to Q4 2022 levels.
Outstanding student loan debt reached $1.604 trillion in the first quarter, with less than 1% of aggregate student debt being 90+ days delinquent or in default—a slight decrease from the previous quarter
