US households have continued to take on more debt, in part to cope with soaring prices, a report on Tuesday showed, while cases of borrowers defaulting on their loans are a worrying sign for the future.
With the biggest spike in inflation in more than four decades putting pressure on families struggling to make ends meet, the New York Federal Reserve Bank’s latest report shows that credit card balances rose as sharply in the April-June quarter as not for 20 years.
Total household debt rose 2 percent over the past three months and is now $2 trillion above pre-pandemic levels, the report showed.
While family finances remain in good shape for now — helped by government bailouts and foreclosure bans — researchers warn that the era of historically low defaults is coming to an end, particularly among those with lower credit scores known as “subprime borrowers.” . “
“The second quarter of 2022 showed robust increases in mortgage, auto loan and credit card balances, driven in part by rising prices,” said Joelle Scally of the New York Fed’s Center for Microeconomic Data.
“While overall household balance sheets appear to be in a strong position, we are seeing rising arrears among subprime and low-income borrowers with interest rates approaching pre-pandemic levels.”
Crime rates remain low and are expected to spike when foreclosure moratoriums end, but the report warns that the data points to potential problems for communities “experiencing the economy differently.”
“We’re seeing a hint of a return to the crime and hardship patterns we saw before the pandemic,” New York Fed researchers said in a blog post.
Total household debt rose $312 billion to $16.15 trillion in the quarter, and its largest component — mortgages — jumped $207 billion to just under $11.4 trillion, according to the report . However, the number of new home loans declined as lending rates rose.
Credit card balances (up $46 billion) and car loans (up $33 billion to $1.5 trillion) were impacted by rising prices, the report said.
Meanwhile, student loans, which still benefit from pandemic forbearance programs, were essentially flat at $1.6 trillion.
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