Total U.S. household debt increased by $212 billion to an all-time high of $17.5 trillion in the fourth quarter of 2023, according to new data from the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit.
Household debt rose by 15 percent over the last year, and it has climbed by 46 percent since 2021.
All types of loans drove the 5 percent quarterly rise in household debt in the final three months of 2023.
Credit card debt, coinciding with the holiday shopping season, climbed by $50 billion, to a new record of $1.129 trillion. This is up nearly 15 percent from the fourth quarter of 2022.
Mortgage balances surged by $112 billion, to $12.252 trillion, while home equity lines of credit (HELOCs) rose by $11 billion, to $360 billion. Borrowers utilized HELOCs as they refinanced their first mortgages, the report found.
Auto loans continued their upward trend, increasing by $12 billion, to $1.607 trillion.
Debt for student loans, which resumed late last year, jumped by $2 billion, to $1.601 trillion.
When the numbers are adjusted for inflation, what households owe is about 5 percent below the all-time high set during the global financial crisis of 2008–09, says John Kiernan, the editor at WalletHub.
Financial Stress
Staff economists warn that the report “signals increased financial stress, especially among younger and lower-income households.” The most notable component was the boost in delinquencies, particularly for auto loans and credit cards that “are still rising above pre-pandemic levels.”It is estimated that 8.5 percent of outstanding credit card debt is a month overdue, up from 7 percent in the fourth quarter of 2019. This is the highest level since the Great Recession.
The credit card debt flow into serious delinquency (90 days or more) advanced to 6.36 percent, up from 4.01 percent at the same time in the previous year.
Serious auto loan debt delinquencies increased to 2.66 percent, up from 2.22 percent in the fourth quarter of 2022. Mortgage debt delinquency rose to 0.82 percent, up from 0.57 percent.
Household debt delinquencies had cratered to historic lows throughout the coronavirus pandemic because of stimulus payments, crisis-era savings, and forbearances on student loans forbearances.
“Both auto loans and credit cards have seen particular worsening of new delinquencies, with transition rates now above pre-pandemic levels,” New York Fed staff economists wrote.
The Inflation Effect
The significant parts of this red ink story are high inflation and rising interest rates, says Tedd Rossman, the senior industry analyst at Bankrate.“There’s a cumulative effect to both,” Mr. Rossman said in a statement. “We’re seeing more people carrying more debt for longer periods of time.”
Since 2021, overall cumulative inflation has been about 18 percent, although it has been higher for basic necessities like food, housing, and electricity. At the same time, interest rates have rocketed to their highest levels in more than two decades as the Federal Reserve tries to defeat inflation.
While the growth rate of inflation has eased from its 9.1 percent high in June 2022 to around 3 percent today, prices continue to edge higher for a wide range of goods and services.
During a recent ABC News interview, Treasury Secretary Janet Yellen warned that prices will not return to their pre-pandemic levels, which she conceded the American people realize.
In addition, Fed Chair Jerome Powell said during an interview with CBS’s “60 Minutes” that prices are still much higher than before the public health crisis and will not decline.
“The overall price level doesn’t come down. It will fluctuate. And some goods and services will go up, others will go down,“ Mr. Powell said. ”But overall, in aggregate, the price level doesn’t tend to go down except in fairly extreme circumstances.”
Current market conditions have many Americans who say they are struggling.
A recent Issues and Insights/TIPP poll found that nearly two-thirds (64 percent) of U.S. voters report “living paycheck to paycheck these days.” The notion that they are “barely getting by” was evenly split among Republicans (67 percent), Democrats (63 percent), and Independents (62 percent).
Despite these concerns, consumer sentiment has improved in the last few months.
The February RealClearMarkets/TIPP Economic Optimism Index dipped to 44, coming in below the consensus estimate of 47.2. Readings below 50 indicate less stress, and anything above 50 suggests increased stress.
The Personal Financial Outlook, a gauge of how Americans feel about their personal finances in the next six months, declined from 55 to 53.4.
Still, U.S. voters are dissatisfied with the economy. An NBC News poll found that only 36 percent approve of President Joe Biden’s handling of the economy.
