Americans jacked up their borrowing for the 22nd quarter, as more households applied for loans to buy homes or refinance existing debts, a report by the Federal Reserve Bank of New York showed Tuesday.
Last year, gross household debt balances climbed by $601 billion, surpassing for the first time the $14 trillion mark, a new branch report by the Federal Reserve disclosed. The last time growth was this big was in 2007, when mortgage loans grew by just over $1 trillion.
On the Liberty Street Economics blog, central bank analysts noted that the growth was lifted primarily by a huge rally in mortgage balances, which was up $433 billion and was also the biggest increase since 2008.
Debt from the housing sector now comprises an overall balance of $9.95 billion. The bank also said that auto loans and credit card balances have grown by $57 billion for the current year.
In the fourth quarter, student loan balances rose by $10 billion, a slower pace relative to five years earlier. The researchers found, however, the overall remaining $1.51 trillion in student loan debt could be limiting young consumers trying to build credit.
Loans from credit cards, usually increasing in the fourth quarter as customers do their vacation shopping, grew in 2019 by around $46 billion, an amount analysts observed was bigger than usual.
The rate for a 30-year mortgage has dropped by around 100 basis points in the past year, adding to homeowners' purchasing power. For instance, a $500,000, 30-year loan costs approximately $300 less, a month.
Among student loans, one in nine borrowers were 90-plus days delinquent last year, and this number may be under-reported. Around 50 percent of student loans are currently in default or in forbearance and therefore temporarily not included in the repayment cycle.
As soon as these debts enter that cycle, rates for deferment or delinquency are expected to be around twice as high, the bank report stated.
Financial analysts said the increasing volume of delinquencies among borrowers in their 20s and 30s could be linked to high levels of student debt, which could make it very hard for consumers to settle their bills.
According to Van Der Klaauw, during times when the economy is strong, people would normally not anticipate their rising debt "unless they are changing the lending standards."
In contrast, even as the total volume of household debt has grown, the level of household debt service as a barometer of disposable personal income reached all-time lows that date back to the early 1980s.
