Incomes outpace new loans and other debt

November 13, 2024

Household debt rose by 0.8% quarter-over-quarter to a total of $17.9 trillion in the third quarter of 2024, according to the Federal Reserve Bank of New York’s Household Debt and Credit report. That is similar to the pace of the previous quarter but represents a slowdown from larger increases in late 2023 and the first part of 2024.

The New York Fed's blog post shows that personal disposal income has grown even faster. The debt-to-income ratio has fallen to 82%, below the pre-pandemic level of 86%. The ratio has declined for mortgages, auto loans and student loans. For credit cards, that ratio has ticked up but it is still below the pre-pandemic level. Less debt versus income points to a stronger consumer.

Delinquencies rose to 3.5% of total outstanding debt in the third quarter of 2024. That is up from 3.2% the previous quarter; it is the highest rate since mid-2020 when consumers started paying down their debt with government stimulus checks. It is still below the 4.7% rate late in 2019 and the previous decade's average of 6.7%. The relatively low rate now indicates that consumer balance sheets are in good shape, which could put them in a spending mood this holiday season and beyond.

Mortgage balances increased by $75 billion or 0.6% in the third quarter, the same rate as the last quarter. The value of new mortgages expanded to $448 billion this quarter. That is the largest number in almost two years. Consumers took advantage of a drop in mortgage rates during the quarter. Even consumers who have lower credit scores took out new mortgages at a high pace. Mortgage rates have since picked up, meaning that we're likely to see fewer new mortgages.

New mortgage delinquencies have increased to 3.6%, or the highest level since the pandemic. Serious delinquencies (90 days or more) ticked up to 1.1% this quarter, the most in more than four years. The increases show that homeowners are feeling stressed.

Consumers added $24 billion in debt to their credit cards during the third quarter; that's a 2.1% increase. Much of that happened in July; consumers took on less credit card debt in September due to double-digit interest rates and increased savings. New, 30-day delinquencies on credit cards fell to 8.8%. Serious delinquencies declined to 7.1%, which marks a reversal from the upward trend since 2021.

Auto debt rose 1.1% in the third quarter on an increase of $18 billion. That is the highest jump since the middle of last year. It was mostly consumers with high credit scores who signed up for new auto loans. New delinquencies on auto loans are trending in the opposite direction of credit cards; they rose to 8.1% though the number of 90-day delinquencies was flat. Those serious delinquencies rose the most for those aged 50-59 years old; they declined most for those aged 18-29 years old.

More consumers tapped home equity lines of credit (HELOCs). The balance grew by $7 billion, marking the tenth gain in a row. HELOCs remain below pre-pandemic levels but they are a way for homeowners to access record levels of home equity.

Student loan balances moved higher while delinquencies were flat. The pause on penalties for delinquent student loans expired last month; that means we won't see the impact in the data until early next year.

Foreclosures and bankruptcies declined in the most recent quarter. That reversed a general upward trend since late 2021 and early 2022. Both remain well below pre-pandemic levels.