U.S. consumer debt hits historic high amid inflation

by Renata

Renata Kiss, FISM News


High mortgage rates, credit cards, and student loans are driving the latest increase in debt across U.S. households. 

According to the Federal Reserve Bank of New York, total household debt reached $17.29 trillion in the third quarter of 2023, marking a 1.3% increase since the previous quarter. 

The latest reports show mortgage balances rose by $126 billion to $12.14 trillion in September. Credit card balances increased by $48 billion to $1.08 trillion, representing a 4.7% quarterly increase, and student loans rose by $30 billion, marking the total debt at $1.6 trillion. According to a CNN report, these findings point to the largest year-over-year increase in debt since the New York Fed started tracking the data in 1999. 

And Americans are feeling the pinch. The number of consumers who are unable to make their credit card payments, especially amid post-pandemic inflation and high interest rates, has been on the rise. The New York Fed reports that 2% of credit card holders who were on time with their payments in the second quarter are now making late payments passing the 30-day mark in the third quarter. That’s roughly a 1.7% increase since the beginning of this year.

Tedd Rossman, senior analyst at Bankrate, told CNN that rising economic inequality among consumers is likely to stick around. 

“I think economic inequality is continuing to grow, and that is something that has really accelerated in recent years. I think pockets of trouble have started to emerge,” he said.

While credit card delinquencies have stayed relatively the same for Baby Boomers, Gen X-ers, and the Gen Z population, Millennials, on the other hand, are starting to outpace their pre-pandemic debt levels, according to the New York Fed. 

“The continued rise in credit card delinquency rates is broad based across area income and region, but particularly pronounced among millennials and those with auto loans or student loans,” said Donghoon Lee, economic research adviser at the New York Fed. 

The data shows that those with combined balances of over $20,000 have the highest delinquency rates. However, those individuals only account for 6% of all credit card holders.

Meanwhile, mortgage originations, or home loan applications, fell by $386.37 billion, as people are increasingly wary of high mortgage rates. In fact, the New York Fed data predicts this year to be the lowest for mortgage origination value since 2014.  

According to a survey done by the mortgage giant Fannie Mae, 85% of respondents said it was a bad time to buy a home even if they had the finances to do so. 

This comes as home prices had risen in September for the third month in a row, on a year-over-year basis. This was only compounded by rising loan rates for average, 30-year fixed mortgage rates, according to Freddie Mac. The latest reports show that while that number hasn’t risen since this past summer, it remains just under 8%. For comparison, 30 years ago, a 30-year fixed rate was at roughly 5%.

Doug Duncan, Fannie Mae senior vice president and chief economist, said that the current consumer frustration with the housing market is unchanged, and it is only leading to overall pessimism about the economy at large. 

“Across all income groups, inflation has consistently driven the ‘wrong track’ belief since the end of last year, suggesting consumers are fed up with the high prices of many goods and services,” he said.