Household debt exceeds $16 trillion as inflation rises and interest rates rise

A “For Sale” sign outside a home in Albany, California, U.S., on Tuesday, May 31, 2022. Home buyers face a worsening affordability situation with mortgage rates hovering around the highest levels in more than a decade.

Joe Riddell | Bloomberg | Getty Images

The New York Federal Reserve reported on Tuesday that household debt exceeded $16 trillion in the second quarter for the first time, as rising inflation pushed up housing and auto balances.

The US collective IOU totaled $16.15 trillion as of the end of June, which is good for a $312 billion — or 2% — increase from the previous quarter. Debt gains spread widely but focused particularly on mortgages and car purchases.

“Americans are borrowing more, but much of the increased borrowing is attributable to higher rates,” the New York Fed said in a blog post accompanying the issuance.

Mortgage balances rose 1.9% in the first quarter, or $207 billion, to about $11.4 trillion, despite the slower pace of creation. This annual increase represented a 9.1% increase from last year as home prices have exploded during the pandemic era.

Credit card balances are up $46 billion in the three-month period and 13% over the past year, which Fed researchers said was the biggest gain in more than 20 years. Non-housing credit balances increased 2.4% from the first quarter, the largest increase since 2016.

Student loan debt hasn’t changed much at $1.59 trillion.

The increase in borrowing comes with an inflation rate of 8.6% annually in the second quarter that included a 9.1% increase in June – the largest move since November 1981 – according to the Bureau of Labor Statistics. Shelter inflation increased at an annual rate of 5.5% in June, and prices for new and used cars increased by 11.4% and 7.1%, respectively.

In response to high levels of inflation, the Fed raised interest rates four times in 2022, with increases totaling 2.25 percentage points. Those moves, in turn, raised 30-year mortgage rates to 5.41%, up more than two percentage points from the start of the year, according to Freddie Mac.

Despite high levels of debt, inflation and high interest rates, delinquency rates remained relatively benign.

“Although debt stocks are growing rapidly, households in general have weathered the pandemic very well, in large part due to the expansionary programs put in place to support them,” the Fed’s blog said. “Furthermore, household debt is overwhelmingly restricted by borrowers with higher scores, even more so now than in the history of our data.”

During June, about 2.7% of outstanding debt was in delinquency, about two percentage points lower than the first quarter of 2020 as the nation was entering the Covid pandemic.

Fed economists noted that delinquency rates were pushing up for higher-risk borrowers at the lower end of the credit scale.

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