An employee uses a credit card reader to charge a customer in Miami.
Total consumer debt hit a new high in the first quarter of 2023, topping $17 trillion, even with a sharp fall in home equity lending.
Total loans across all categories reached $17.05 trillion, up nearly $150 billion, or 0.9%, in the January-March period, the New York Federal Reserve reported Monday. This increased total debt by about $2.9 trillion compared to the pre-COVID-19 period, which ended in 2019.
This increase came despite mortgage new originations including refinancing totaling just $323.5 billion, the lowest since the second quarter of 2014. The total was 35% below the fourth quarter of 2022 and 62% below the same period last year.
The number of new home loans peaked at $1.22 trillion in the second quarter of 2021 and has since declined due to rising interest rates. A series of Fed rate cuts helped push 30-year mortgage rates to a low of around 2.65% in January 2021.
However, interest rates are now around 6.4% as the central bank decided to raise interest rates ten times, totaling five percentage points, to fight inflation, according to Fannie Mae central bank data. Higher interest rates helped push total mortgage debt to $12.04 trillion, up 0.1 percentage point from the fourth quarter.
Borrowers had taken advantage of previously lower interest rates to buy new homes as well as to refinance, the latter experiencing a boom that appears to have ended.
“The mortgage refinancing boom is over, but its effects will be visible for decades to come,” said Andrew Haughwout, director of budget and policy research at the New York Fed, in a statement accompanying the report.
Fed data shows about 14 million mortgages have been refinanced during the pandemic as of March 2020. About 64% were considered “interest refinancers,” or homeowners looking to take advantage of lower borrowing costs. According to the New York Fed, the average savings of these borrowers was about $220 a month.
“Because of the significant declines in capital, mortgage borrowers reduced their annual payments by tens of billions of dollars, freeing up additional funds for spending or repayments on other categories of debt,” Haughwout said.
Despite rising interest rates, the number of mortgage foreclosures remained low. Default rates for all debt rose 0.6 percentage points for credit cards to 6.5% and 0.2 percentage points for auto loans to 6.9%. Total defaults rose 0.2 percentage points to 3%, the highest level since the third quarter of 2020.
Student loan debt rose slightly to $1.6 trillion, and auto loans also rose to $1.56 trillion.