A bank clerk counts U.S. dollar bills at a Kasikorn bank in Bangkok, Thailand, Jan. 26, 2023.
Athit Perawongmetha | Reuters
Consumer debt hit a new record in late 2022, while default rates on various types of loans rose, the New York Federal Reserve reported Thursday.
Debt across all categories totaled $16.9 trillion, up about $1.3 trillion from a year ago, as balances increased across all major categories.
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Despite a slowdown in lending, mortgage balances increased to $11.9 trillion, up about $250 billion from the third quarter and about $1 trillion year over year. New home loan originations and refinancing declined to $498 billion, less than half the value in the fourth quarter of 2021 and a decrease of about $135 billion from the third quarter.
Mortgage loans classified as “severe defaults” of 90 days or more rose to a rate of 0.57%, still low but nearly double the year-earlier rate. Auto loan arrears rose 0.6 percentage point to 2.2%, while credit card debt rose 0.8 percentage point to 4%.
“Credit card balances grew robustly in the fourth quarter, while mortgage and auto loan balances grew more moderately, reflecting activity consistent with pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed.
“Although historically low unemployment has generally kept consumers’ financial bases strong, persistently high prices and rising interest rates could test some borrowers’ ability to repay their debts,” he added.
The rise in balances came amid an aggressive Fed rate-hiking campaign as it fought inflation, which was near its highest level in more than 41 years.
The Fed raised its interest rate seven times during the year and added another hike in January, bringing the federal funds rate to a target range of 4.5% to 4.75%. Included in this series were four consecutive three-quarters-point increases that raised interest rates on several consumer debt instruments, such as credit cards, mortgages, and auto loans.
Student loan debt also rose during the month, having been flat for much of the pandemic amid the government-backed borrower amnesty. The total balance reached $1.6 trillion in the fourth quarter.
Auto loan debt increased slightly to $1.55 trillion, while credit card balances rose to just under $1 trillion.
The explosion in consumer debt came amid a sustained increase in federal government borrowing. Total US government debt is now nearly $31.5 trillion, up from $29.6 trillion at the end of 2022, according to Treasury Department data.
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