American’s total household debt jumped over $15 trillion in 2021, the largest yearly increase since 2007.
The Bank of New York Federal Reserve has released the mortgage and debt results for the fourth quarter of 2021. The banks’ survey for the last three months of last year The survey revealed an increased amount of debt over the past three months, and the one that stands out the most is the massive increase in total household debt. As of December 31, the Federal Reserve totaled $15.58 trillion, which is an increase of one trillion dollars. This was described as the largest increase in total household debt in a single year since 2007. According to the New York Federal Reserve Bank survey, the total household income is higher at $890 billion compared to the third quarter of 2020, when it was $768 billion.
Investors remain cautious about the negative impact of March interest rate hikes on mortgage rates and credit rates. Speaking of mortgage balances, the survey states that mortgages increased by $230 billion. On top of that, by the end of September, mortgage balances in the U.S. were worth $10.67 trillion. The American credit card balance increased at the same rate as the previous quarter, which was estimated to be an increase of $17 billion in the past three months. The report also revealed other data, of which we will mention some of them:
- Auto loan balances rose by $28 billion as of the end of Q3 of 2021.
- Non-housing balances rose by $61 trillion, including the increase of $14 trillion in student loan balances.
- Mortgage refinancing fell from $1.1 trillion in the second quarter of 2021 to $1.1 trillion in the third quarter of 2021.
Plus, the report also states that the share of mortgage balances in the past three months remained the same at 0.5%. This report is a bit alarming for American domestic buyers. The pandemic is still hot while inflation is burning all the bushes. The Federal Reserve has already announced that it will start implementing its interest hikes by the beginning of March.
Higher interest rates will make the household debt more expensive.
We observed in the report that most of the increase in household debt came from mortgage balances. This is the first section that could be affected by the increase in interest rates. In a different scenario, the Federal Reserve was willing to decline the mortgage rate. That would be beneficial for the consumer, but that’s not the case here. Inflation is at its highest level since 2007. The consumer sentiment is declining, and that’s according to the buyer conquer index recent reports. An increase in interest rates means an increase in Bowring cost on household debts. That means that credit cards, student loans, mortgage rates, and balances will be more expensive on the domestic and the Average American buyer.
The Federal Reserve will tighten its monetary policy starting in March. The Federal Chairman recently commented that the central banks may be more aggressive and increase interest rates six times this year. If that happens, this may discourage households from saving more and tightening their spending abilities. The prices are already high, so the American consumer may face a few difficult months in the first months of the interest hikes.