Liberal Forum

(Reuters) - Total U.S. household debt levels edged up in the second quarter but overall delinquency rates stabilized, indicating that borrowers are still in decent enough shape to support the economy, a report from the Federal Reserve Bank of New York said on Tuesday.

 The bank report, part of its survey of household debt and credit conditions, showed that overall debt levels rose by $109 billion, or 0.6%, in the second quarter to $17.80 trillion.Overall borrowing levels are now $3.7 trillion above where they were at the end of 2019, before the onset of the coronavirus pandemic, the report said.

 The data arrives at an uncertain time for the economy. The Federal Reserve raised its benchmark interest rate to 5.25-5.50% from near zero between March 2022 and July last year, where it remains, in order to quash high inflation. Borrowing costs overall jumped in lockstep but the economy remained resilient amid a high savings rate.

 Worse-than-expected job market data last week, however, have made financial markets nervous that the economy may be on the cusp of a downturn. Fed policymakers, who already signaled they expect to begin cutting rates in September now that inflation is near the 2% target rate, have said they don't want to wait too long before lowering rates and have cited delinquencies as one area they are closely monitoring.

 On that front there was some relief with the report showing that overall delinquency rates remained at 3.2%, unchanged from the first quarter, and still well below the 4.7% rate seen at the end of 2019 before the coronavirus pandemic

.However, transitions in delinquent borrowing levels rose slightly in the second quarter for credit cards and auto loans, which both remain elevated although the pace of worsening slowed. Roughly 9.1% of credit card balances and 8.0% of auto loan balances transitioned into delinquency over the past year.

 Delinquency transition rates for mortgages also rose slightly but early delinquency rates for mortgage accounts remained low by historical standards, the report noted.

 Mortgage balances were up by $77 billion to $12.52 trillion, while auto loan levels increased by $10 billion and overall credit card borrowing outstandings rose by $27 billion by the end of the quarter, to $1.14 trillion. Credit card balances during the quarter were 5.8% above the level they stood at a year ago. Retail cards and other consumer loans were effectively flat while student loan balances declined by $10 billion.

 Home equity lines of credit (HELOC) balances rose by $4 billion, the ninth consecutive quarterly increase since the first quarter of 2022. HELOCs are a revolving line of credit secured against a borrower's home.

Americans who want to tap the rising equity of their homes without giving up their low mortgage rates are increasingly turning to home equity lines of credit.

 After almost 13 years of declines, balances on home equity lines of credit, known as HELOCs, have begun to rebound, gaining 20% since bottoming out at the end of 2021, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit released Tuesday.

 Meanwhile, high borrowing costs led to fewer mortgage originations in the second quarter.

 The share of overall consumer debt in delinquency was unchanged at 3.2%, though the share of auto and credit card loans that were newly delinquent continued to climb, the report also showed.

 Some $374 billion in mortgage debt was originated in the second quarter, down substantially from about $900 billion on average in 2021 and 2022, the report said. Balances on home equity lines of credit, or HELOCs, rose to $380 billion, representing the ninth consecutive increase.

 “The volume of mortgage originations remained low, primarily due to subdued refinancing activity,” Andrew Haughwout, director of household and public policy research at the New York Fed, said in a press release accompanying the report. “Homeowners continued to increase HELOC balances as an alternative way to extract home equity.”

 The drop in mortgage origination is part of a broader slowdown in a housing market that became overheated during the pandemic, when home buyers and home owners rushed to take advantage of lower mortgage rates by purchasing homes and refinancing existing loans.

 Since late 2021, HELOC balances have rebounded as people use this source of cash to pay down other debt or meet large expenses. Around 1.8 million HELOCs in total were originated in 2023 and the first two quarters of 2024, and many went to older borrowers, who typically have owned their homes for a longer period of time and have more equity to tap.

Overall household debt increased by $109 billion in the second quarter to $17.8 trillion, the report showed. That included a $77 billion increase in mortgage debt, which was slowed by the drop in mortgage originations. Balances on credit cards rose by $27 billion to $1.14 trillion, and auto loan balances increased by $10 billion to $1.63 trillion. 

 Consumers continued to struggle with their debt payments despite the stablization in overall delinquency. The share of auto loan balances that became at least 30 days delinquent rose to 7.95%, the most since 2010. The share of credit card debt that was newly delinquent rose to 9.05%, the most in about 12 years.

 Meanwhile more than 10% of the youngest credit card borrowers had not made a payment in at least 90 days as of the end of June, double the rate at the end of 2021.

LowIQTrash » 07 Aug 2024, 10:02 am » wrote: ↑

07 Aug 2024, 10:02 am

Inflation ->
Consumers need to tap savings ->
still not enough ->
consumers use CCs ->
still not enough ->
consumers tap home equity if they have a house -> (YOU ARE HERE)
STONK MARKET / CRYPTO goes bananas as people look for "quick money" ->
55% (possibly more) CRASH

All going according to (((plan)))     

(((BlackRock))) wants HOUSES for cheap 

LowIQTrash » 07 Aug 2024, 10:02 am » wrote: ↑

07 Aug 2024, 10:02 am

Inflation ->
Consumers need to tap savings ->
still not enough ->
consumers use CCs ->
still not enough ->
consumers tap home equity if they have a house -> (YOU ARE HERE)
STONK MARKET / CRYPTO goes bananas as people look for "quick money" ->
55% (possibly more) CRASH

All going according to (((plan)))     

(((BlackRock))) wants HOUSES for cheap