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The
higher borrowing was fueled in part by rising prices as
consumers cope with the strongest inflation seen in nearly four
decades. And households, supported by increased savings and
higher incomes, seem to be handling the larger debt loads well
so far, researchers said.
"The aggregate balances of newly opened mortgage and auto loans
sharply increased in 2021, corresponding to increases in home
and car prices," Wilbert Van Der Klaauw, senior vice president
at the New York Fed, said in a statement.
Total household debt grew by $1 trillion last year, marking the
largest increase in overall debt since 2007, according to the
New York Fed's quarterly report on household debt and credit.
The total debt balance is now $1.4 trillion higher than it was
at the end of 2019.
Over $4.5 trillion in mortgages were originated in 2021,
reaching a historic high for the database, which goes back to
1999. Mortgage balances increased by $258 billion in the fourth
quarter to $10.93 trillion at the end of December.
Auto loan originations returned to pre-pandemic trends but loan
amounts increased in response to rising car prices, New York Fed
researchers said. "As car prices have soared, buyers have
borrowed more to finance the additional cost," researchers wrote
in a separate blog post published on Tuesday.
Some borrowers anticipating higher interest rates may also be
taking advantage of lower borrowing costs, researchers said,
noting an increase in mortgage refinancing.
Fed officials are expected to start raising interest rates in
March and to begin shrinking their balance sheet holdings later
this year. Both actions could increase borrowing costs as the
Fed works to tame inflation and remove the support offered
during the pandemic.
Graphic: Number of accounts by loan type - https://graphics.reuters.com/USA-FED/HOUSEHOLD-DEBT/lbpgnwzmrvq/chart_eikon.jpg
MORE CAPACITY TO ADD DEBT
In a sign that consumers are returning to their pre-pandemic
spending habits, credit card balances also increased by $52
billion in the fourth quarter. That marked the largest quarterly
increase observed in the history of the data, but credit card
balances are still $71 billion lower than they were at the end
of 2019.
Credit card use typically rises in the fourth quarter as people
make holiday purchases, but the increase could also reflect
higher prices for goods and services, researchers said.
Households in aggregate have so far been able to absorb the
higher debt loads and delinquencies remain low, thanks in part
to savings accumulated earlier in the pandemic and forbearance
programs, researchers said.
"The economy is recovering, incomes are up and households have
the capacity to add debt," said Tim Duy, a University of Oregon
professor and the chief economist of SGH Macro Advisers.
The share of disposable income that households spend on rent,
loan payments, taxes and other bills is low by historical
standards, Duy said.
Still, some borrowers that haven't fared well during the
pandemic could have a harder time keeping up with their debt
payments later, New York Fed researchers said.
It will be important to watch how some borrowers fare after they
need to resume student loan debt payments in a few months, they
said.
(Reporting by Jonnelle Marte; Editing by Howard Goller and
Andrea Ricci)
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