Housing loans increase household debt

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In the second quarter, US household debt grew at the fastest pace since 2013, fueled by the mortgage boom as Americans took advantage of low borrowing costs and sought more work from home.

Household liabilities rose $ 313 billion to $ 14.96 trillion at the end of June, up 2.1% from three months ago, the Federal Reserve Bank of New York said in a report on Tuesday.

Most of the increase came from mortgage loan balances. With the 30-year average rate cut during this period, millions of Americans with good credit took the opportunity to refinance and cut their monthly payments. According to the New York Fed, about 44% of the country’s total $ 10.4 trillion mortgage loans were issued in the 12 months to June.

“We have seen a very high rate of new loan creation over the past four quarters, with new lending extensions for mortgages and auto loans coupled with a rebound in demand for credit card borrowing,” said Joel Scully of the New York City Microeconomic Data Center. They fed.

The US housing market has been so hot that many homeowners have higher levels of home equity, even if they borrowed more. According to Fannie Mae, home prices jumped 10.5% in the first half of 2021, the fastest rate on record. US homeowners pulled out about $ 50 billion in home equity in the first quarter, the highest in more than a decade.

However, the opportunity was not available to everyone. According to the Mortgage Bankers Association, the availability of mortgage loans has dropped sharply since early 2020, when the pandemic was declared a national emergency. More than 71% of mortgages in the second quarter were among borrowers with a credit rating of at least 760, slightly below the record 73% in the previous three months.

For other types of loans such as auto loans and credit cards, lending standards have weakened for other types of loans, such as auto loans and credit cards, according to a July survey of the Fed’s senior loan officer released on Monday.

Overall, household debt, measured as a share of the economy, remains well below the highs recorded in the years leading up to the 2008 financial crisis. And some types of borrowing have not yet reached the pre-pandemic level in dollar terms.

Credit card balances, although up $ 17 billion in the second quarter due to the consumer economy recovery, are about $ 140 billion less than at the end of 2019.

Government policies to tackle the pandemic – from one-time checks and extra unemployment benefits to loan-waiver programs – have helped Americans stay on top of their debts, while delinquencies have fallen across most categories of borrowing.

The biggest shift has occurred in student debt. About 5.7% of student loans were 90 days overdue or outstanding at the end of June, up from more than 11% before the pandemic.

New York Fed officials said delinquencies could start to increase as the covid policy expires. The freeze on student loan payments, for example, is due to end on September 30th.

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