Household debt approaches $16 trillion, despite rising interest rates and inflation

Representative Rashida Tlaib (D-MI) joins activists in a demonstration outside a White House entrance calling for student debt forgiveness in Washington, US, April 27, 2022.

Evelyn Hockstein | Reuters

Even with inflation rampant and interest rates rising rapidly, household borrowing rose to start 2022 and hit a new all-time high, the Federal Reserve reported Tuesday.

Consumer debt and credit rose 1.7% in the first quarter to $15.84 trillion. The increase in total credit to households was largely driven by a $250 billion increase in mortgage debt, which now stands at $11.18 trillion, up 10% from the first quarter of 2021.

Credit card balances declined $15 billion during the three-month period, but still remained $71 billion, or about 9%, higher than the same period a year ago. Auto loan production fell in the first quarter after what the New York Fed described as “an historically vibrant 2021,” in which used car prices rose nearly 27%.

Student loan debt rose $14 billion in the first quarter, bringing the annual increase to 6.5%.

The overall acceleration in debt is accompanied by a rise in consumer price inflation of 8.5% over the past year through March, and with interest rates soaring to multi-year highs. Thirty-year mortgage rates are now around 5%, after being closer to 3% a year ago, according to Freddie Mac.

Mortgages make up 71% of all household debt, a number that has been rising steadily.

Households have generated $8.4 trillion in new mortgage debt since the start of the Covid pandemic, the result of a move trend out of cities and into the suburbs, a move that has coincided with a massive price hike, the New York Fed reported. According to Census data, the median home price has risen 30% in the past two years to $428,700.

However, the New York Fed added that it appears that the refinancing boom that has coincided with falling mortgage rates is waning as interest rates rise.

To curb rising inflation, the Fed has approved two rate hikes this year totaling 0.75 percentage points and is expected to approve a series of additional hikes through the end of the year.

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