The upsurge in credit card debt, reaching $1 trillion for the first time played a crucial role in propelling the total household debt figures to $17 trillion , according to latest data released by the Federal Reserve Bank of New York.
US Total Household Debt and its composition
More than 70 percent of household debt is mortgage balances. They were largely unchanged at $12 trillion in the last quarter. Due to a sharp rise in interest rates, slow home loan growth depressed home purchase applications.
Credit card balances increased by $45 billion from $986 billion in the first quarter of 2023 to $1 trillion in the second quarter of 2023, a 4.6 percent quarter-over-quarter increase. Credit card accounts increased by 5.48 million to 578.35 million. The total limit for credit card accounts increased by $9 billion and is now $4.6 trillion. Credit card holders have, in aggregate, $3.6 trillion in additional credit availability.
According to a separate report from the US Federal Reserve, credit card interest rates rose to a record 22.2 percent in May. More than 70 million new credit card accounts have been opened since the start of the pandemic.
Auto loan balances increased by $20 billion reaching to $1.56 trillion, in line with the upward trend seen since 2011. New auto loans, including leases, were $179 billion, largely reflecting the high dollar value of loans originated, although the number of new loans remains flat, below pre-pandemic levels. Student loan balances fell by $35 billion to $1.57 trillion.
Mortgage balances were largely unchanged from the previous quarter, reaching $12.01 million at the end of June, largely due to lower mortgage lending and slower home prices. Home loans, which include refinancing, were $393 billion in the second quarter, up $70 billion from the first quarter. Other balances, which have retail cards and additional consumer credit, increased by $15 billion.
Delinquency rates remained roughly flat in the second quarter of 2023, remaining low after a sharp decline at the beginning of the pandemic. The share of recently unpaid debt increased by 0.7 and 0.4 percentage points for credit cards and car loans. Compared to other debt categories this quarter, credit card balances saw the most pronounced worsening in performance, following a period of extraordinarily low delinquency rates during the pandemic. Student loan performance was unchanged, with reported delinquencies at historic lows as the federal repayment pause remains in place until August 31, 2023.
“Credit card balances grew rapidly in the second quarter,” said Joelle Scally, regional director of economics in the Household and Public Policy Research Division of the Federal Reserve Bank of New York. “And while the delinquency rate has increased, it appears to have returned to pre-pandemic levels.”
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An interesting observation is the decline of $35 billion in student loan balances during the second quarter, resulting in a revised total of $1.57 billion. The suspension of federal student loan payments continues until October 2023, and any non-payment incidents on federal student loans will not be disclosed to credit bureaus until the fourth quarter of 2024. These measures have led to a situation where less than 1% of the total student debt was recorded as being 90 or more days overdue or in default during the second quarter of 2023.
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