In spite of a significant decline in house borrowing, total consumer debt surpassed $17 trillion in the first quarter of 2023, setting a new record.
According to a study released on Monday by the New York Federal Reserve, the total amount of borrowing across all categories reached $17.05 trillion, a rise of around $150 billion or 0.9% from January to March. This increased overall debt from the pre-Covid period, which concluded in 2019, by nearly $2.9 trillion.
Even while total new mortgage originations, including refinancings, only reached $323.5 billion, the lowest level since the second quarter of 2014, that growth occurred. The sum was 62% less than the same time last year and 35% less than the fourth quarter of 2022.
The total amount of new mortgages reached a peak of $1.22 trillion in the second quarter of 2021 and has since been declining as interest rates have gone up. In January 2021, 30-year mortgage rates reached a low of about 2.65% thanks to a series of Fed rate decreases.
However, rates are currently about 6.4% as a result of 10 rate increases totaling 5 percentage points implemented by the central bank to combat inflation, according to information provided by the central bank to Fannie Mae. The overall mortgage debt increased 0.1 percentage points from the fourth quarter to $12.04 trillion because to the higher interest rates.
The previously reduced rates had been utilized by borrowers to refinance loans as well as purchase new homes, the latter of which had seen a boom that seems to have ceased.
According to Andrew Haughwout, director of consumer and public policy research at the New York Fed, “the mortgage refinancing boom is over, but its impact will be felt for decades to come.”
Approximately 14 million mortgages were refinanced during the epidemic period beginning in March 2020, according to statistics from the Fed. 64% of such transactions were regarded as “rate refinances,” or homebuyers wanting to benefit from decreased borrowing rates. According to the New York Fed, these borrowers had average savings of around $220 per month.
Mortgage debtors decreased their yearly payments by tens of billions of dollars as a result of big equity drawdowns, according to Haughwout. This freed up extra funds for spending or debt paydown in other areas.
Foreclosures on mortgages remained minimal despite rising rates. Delinquency rates for all debt rose, with credit card delinquencies rising by 0.6 percentage points to 6.5% and auto loans by 0.2 percentage points to 6.9%. The overall delinquency rate increased by 0.2% to reach 3.0%, which is the highest level since the third quarter of 2020.
Debt for both student loans and car loans increased slightly, reaching $1.6 trillion and $1.56 trillion, respectively.