Consumers took on less debt

May 16, 2024

Household debt rose by 1.1% to a total of $17.7 trillion in the first quarter of 2024, a slowdown from the last half of 2023, according to the Federal Reserve Bank of New York’s Household Debt and Credit report. Mortgages accounted for nearly the entire increase at $190 billion as rates for mortgages fell from their highs in the fourth quarter and boosted new and existing home sales. Home equity lines of credit (HELOCs) were also tapped, adding $16 billion, the fastest pace since the second quarter of 2008. Auto debt increased $9 billion, the slowest pace since 2021, while credit card debt and student debt declined $14 billion and $6 billion respectively.

The report indicates that delinquencies (of any duration) rose to 3.2% of total balances from 3.1% in the fourth quarter of 2023. That is up from a low of 2.5% in the fourth quarter of 2022 but still below the fourth quarter of 2019 level of 4.7% and well below the 2010s average of 6.7%.

Credit card usage slowed in the first quarter as consumers felt the pinch of climbing rates. Credit card balances fell slightly, for the first time since early 2021, when consumers used their stimulus checks to pay down their cards. Delinquencies have been climbing for several quarters. Early delinquency is up to 8.9% for credit cards from 8.5% in the fourth quarter of last year and above the fourth quarter of 2019 level of 7%. Meanwhile, defaults and serious delinquencies (of 90 days or more) are up to 10.7% of balances, reflecting rates that have jumped to 21.6%, according to the Fed’s monthly consumer credit report. That is up a full percentage point from the fourth quarter at 9.7% and above the fourth quarter of 2019 level of 8.4%. The all-time high for the series going back to 1999 was reached in 2010 at 13.7%. The NY Fed’s blog post highlighted that borrowers who are maxing out their credit limits have shown the largest increases in delinquency; that group has the lowest median total credit limit of $5,000 compared to the overall median limit of $10,050.

Among different groups, both lower income and younger borrowers are more likely to be maxed out on their credit cards. The first income quartile (lowest) shows that 12.3% of borrowers are maxed out compared to 10.2% in the second quartile, 8.1% in the third and 5.5% in the fourth quartile. The same trend can be seen among younger borrowers with 15.3% of Gen Z borrowers maxed out compared to 12.1% of millennials, 9.6% of Gen X and just 4.8% of baby boomers.

Mortgage debt increased by $190 billion in the first quarter as home sales ticked up. Originations continued at a subdued pace while the share of originations for consumers with credit scores above 720 continued to increase. Higher rates to start the second quarter are likely to reverse that jump.

Newly delinquent payments continued to increase for mortgages and HELOCs at 3.2% and 2.1% respectively. They were at 3.5% and 2.1% just prior to the pandemic in the fourth quarter of 2019. This is not necessarily cause for concern yet; defaults and serious delinquencies in both mortgages and HELOCs remained extremely low with no change to mortgages while HELOCs fell to 0.5%, the lowest reading since 2006.

Auto loan balances increased by $9 billion as stress continued to simmer amid higher rates. As many as 7.9% of auto balances were newly delinquent compared to 7.7% last quarter and 6.9% in the fourth quarter of 2019. Defaults and serious delinquency increased to 4.4% in the first quarter compared to 4.2% last quarter, below the fourth quarter of 2019 level of 5%. Originations have stalled and remain concentrated among borrowers with higher credit scores.

The data on how the return of student loan payments has impacted borrowers will remain murky until the end of the pause on penalties for defaults on student loans. There were no changes to balances, delinquencies or defaults in the first quarter of this year.