Fed Report: Mortgage Debt Surges, Consumer Credit On The Mend

According to a new report from the Federal Reserve, total household debt rose to $14.56 trillion in the fourth quarter of 2020, an increase of $206 billion from the third quarter. Year-over-year, the report shows an increase in household debt of $414 billion.

The increase is due in large part to a surge in mortgage debt, which hit $10.04 trillion at the end of the year, an increase of $182 billion. This also includes a surge in newly originated mortgages, according to the Quarterly Report on Household Debt and Credit, which is issued by the Federal Reserve Bank of New York’s Center for Microeconomic Data.

“Notably, the overall median mortgage origination credit scores jumped up, reflecting a high share of refinances,” said Wilbert Van Der Klaauw, senior vice president at the NY Federal Reserve, in the report.

Although newly originated mortgages hit $1.2 trillion in Q4, only about 30,000 individuals received new foreclosure notations on their credit reports in the second half of 2020, “by far the lowest six months we have seen since the beginning of the series in 1999,” according to the report.

Student and auto loan debt also increased in the fourth quarter, the report said. Student loan debt hit $1.56 trillion, a $9 billion increase from the third quarter, which reflects the CARES Act student loan forbearance program. Other forbearance programs made an impact on delinquency rates on mortgage and auto loans, as well as credit card debt.

“As of late December, the share of outstanding debt that was in some stage of delinquency was 1.6 percentage points lower than the rate observed at end-2019 before the COVID-19 pandemic hit the United States,” the report noted.

Notably, while credit card balances were up by $12 billion in the fourth quarter, that’s still $108 billion lower than where they were at the end of 2019. This marks the largest decline in credit card debt since the Fed began this report in 1999. The year-over-year drop reflects consumers’ desire to save amid the pandemic, but this quarter’s increase also signals an uptick in consumer spending.

The report gathered its data from the NY Federal Reserve’s Consumer Credit Panel, which draws a random sample of anonymous Equifax credit data that represents individual- and household-level credit and debt records.

In a January report, the NY Fed found that consumers’ expectations rose to 4.2 percent. They expect to spend more this year than they have in the past five years.

The Census Bureau’s Wednesday report of January retail sales also displayed an increase of 5.3 percent, pointing to a boost in spending due to the second round of COVID-19 relief stimulus checks.