U.S. households set a new record for debt in the fourth quarter as the surge in mortgage borrowing offset declining credit-card balances.
The New York Federal Reserve reported Wednesday that total household debt rose by $206 billion, or 1.4%, to $14.56 trillion in the fourth quarter. The total debt balance is now $414 billion higher than a year earlier.
Mortgage balances — the largest component of household debt — surpassed $10 trillion for the first time, increasing by $182 billion to $10.04 trillion at the end of December. Newly originated mortgages, which include refinances, reached a record $1.2 trillion, topping in nominal terms the volumes seen during the historic refinance boom in the third quarter of 2003.
Auto and student loan balances increased by $14 billion and $9 billion, respectively.
“2020 ended with a substantial increase in new extensions of credit, driven by record highs of new mortgages and auto loan originations,” Wilbert Van Der Klaauw, senior vice president at the New York Fed, said in a news release. “Notably, the overall median mortgage origination credit scores jumped up, reflecting a high share of refinances.”
As Reuters reports, “Home buying and refinancing took off last year after the Federal Reserve slashed its key overnight interest rate to near zero to fight the economic fallout from the [coronavirus] pandemic, leading to lower mortgage rates.”
“A massive shift to working and learning from home also bolstered the housing market, as some families searched for properties with more living space,” Reuters said.
Credit-card balances, meanwhile, increased by $12 billion over the quarter but ended the year down $108 billion, or 12%, from 2019, the largest year-over-year decline since the NY Fed began analyzing the data in 1999.
The decline is “consistent with continued weakness in consumer spending and revolving balance paydowns by card holders,” the Fed said.
Aggregate credit delinquency rates continued to decline in the fourth quarter, reflecting an uptake in forbearances that were provided by the CARES Act or voluntarily offered by lenders. The share of mortgages that transitioned to early delinquency ticked down to 0.4%.