Despite a decline in mortgage demand, consumer debt has reached an unprecedented milestone, surpassing $17 trillion for the first time

In the first quarter of 2023, the total amount of consumer debt reached a record high, surpassing $17 trillion. During the same period, new mortgage originations, which include refinancings, amounted to a mere $323.5 billion, marking the lowest level seen since the second quarter of 2014.

In the first quarter of 2023, consumer debt reached a record high, surpassing $17 trillion, despite a significant decrease in mortgage borrowing. According to the New York Federal Reserve, total borrowing across all categories rose by approximately $150 billion, or 0.9%, during the period from January to March. This increase reflects a total indebtedness growth of around $2.9 trillion compared to the pre-Covid period ending in 2019.

Despite new mortgage originations, including refinancings, reaching the lowest level since the second quarter of 2014, there has been an increase in total outstanding mortgage debt. The recent total amounted to $323.5 billion, marking a 35% decrease compared to the fourth quarter of 2022 and a significant 62% drop from the same period last year.

New home loans had previously reached their peak at $1.22 trillion in the second quarter of 2021 but have been declining ever since due to rising interest rates. In January 2021, a series of rate cuts by the Federal Reserve led to 30-year mortgage rates hitting a record low of approximately 2.65%.

Currently, interest rates stand at approximately 6.4%, as the central bank has implemented ten consecutive rate hikes amounting to a total increase of 5 percentage points. These measures were taken in response to inflation concerns, as indicated by data from Fannie Mae. The elevated rates have contributed to a rise in overall mortgage debt, reaching $12.04 trillion, representing a marginal increase of 0.1 percentage point compared to the previous quarter.

Previously, borrowers took advantage of lower rates for both purchasing new homes and refinancing existing mortgages. However, the surge in refinancing activity, which experienced significant growth, has now come to an end. Andrew Haughwout, the director of household and public policy research at the New York Fed, remarked that while the mortgage refinancing boom has concluded, its long-lasting effects will persist for decades, as stated in the accompanying report.

During the pandemic period starting in March 2020, approximately 14 million mortgages were refinanced, as per data from the Federal Reserve. Among these refinances, about 64% were rate refinances, indicating homeowners’ intent to take advantage of lower interest rates. On average, borrowers saved around $220 per month, resulting in significant annual savings. This reduction in mortgage payments allowed homeowners to allocate funds towards other expenditures or debt repayments, thanks to the equity drawdowns.

Although mortgage rates rose, the number of mortgage foreclosures remained low. However, delinquency rates for various types of debt increased. Credit card delinquency rates rose by 0.6 percentage points to 6.5%, while auto loan delinquency rates increased by 0.2 percentage points to 6.9%. Overall delinquency rates also experienced a 0.2 percentage point increase, reaching 3%, the highest level since the third quarter of 2020.

Meanwhile, student loan debt reached $1.6 trillion, representing a slight increase, and auto loans rose to $1.56 trillion.