US household debt rose to its highest levels in 14 years during the second quarter of 2021. Thanks to a surge in the housing market, the total collective debt of American households reached $14.6 trillion. This is according to a Federal Reserve report issued Tuesday.
US Household Debt Posts Sharpest Rise Since 2007
During the period covering April to June, total debt balances rose by $313 billion. This is the sharpest rise in the second quarter of 2007. As a share of debt, the increase came out to 2.1%, which is the fastest rate since the fourth quarter of 2013.
Most of the piled-on debts came from mortgage originations. This consisted of both initial purchases and refinances. Demand for housing as well as refinancing jumped when the Federal Reserve decided to keep benchmark borrowing rates at historic near-zero levels.
Mortgage Balances and Non-Housing Debt Increase
In addition, mortgage balances increased by $282 billion from April to June. This is a 2.8% increase compared to January to March 2021. It also meant a 6.7% increase from a year ago, totaling $10.4 trillion. In addition, mortgage originations totaled near $4.6 trillion, which amounts to almost 44% of all outstanding balances for home loans.
Outside of home purchases, non-housing balances totaled $44 billion. Credit card balances went up by $17 billion. Meanwhile, automobile financing also rose as attractive deals came with low-interest rates.
As a result, auto loans went up by $33 billion. A notable decrease in debt totals was for student loans. With forbearance programs in effect, education loan balances went down by $14 billion to $1.57 trillion.
Loan Delinquency Rates Down As Well
Meanwhile, the plethora of government programs aimed to keep Americans afloat during the pandemic worked. Consequently, delinquency rates across the board dropped. Only about 2.7% of total debt is delinquent, which means a 2% drop from the pre-pandemic fourth quarter of 2019.
However, experts warned that many federal programs that helped shield Americans from creditors are now slowly phasing out. This means many will begin facing mounting pressure to resume payments.
Joelle Scally, administrator of the Center for Microeconomic Data at the New York Federal Reserve issued a statement. “We have seen a very robust pace of originations over the last four quarters with new extensions of credit for mortgages and auto loans combined with rebounding demand for credit card borrowing.
However, there are still two million borrowers in mortgage forbearance who are vulnerable to financial distress once the forbearance programs come to an end.”
Housing Loan Availers Have High Credit Ratings
Thankfully, the credit quality of housing loans available remains high. The median credit score for new housing loans is 760. During this period, around 71% of all home loan borrowers have a score of over 760.
Meanwhile, the share of mortgages moving to delinquency totaled just 0.4%, which is a record low. In addition, unpaid mortgages that are 90 days or more past due also set a record low at 0.5%. This is thanks to the ongoing forbearance programs.
Watch the Yahoo Finance video reporting that households boost borrowing amid COVID-19 recovery with largest increases in debt balances since 2007:
What do you think about the increasing US household debt? With the economy stalling yet again due to a resurgence of the virus, do you expect many Americans to default? Or do you see a healthier economy rising as more and more people get jobs?
Let us know what you think. Share your thoughts below.
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