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Market Trends Mortgage and Household Debt Analysis
2 minute read
February 11, 2022

Household debt reached its highest increase since 2007 last year, according to new survey data from the Federal Reserve Bank of New York.

In the last three months of 2021, household debt increased $333 billion to $15.58 trillion.

Over the entire year, household debt increased by $1 trillion, which is the largest increase since 2007.

Most of the household debt growth, which is about 77 percent of the quarter-over-quarter increase, came from mortgage balances.

Auto loans were the other driving factor in the increase.

Historically low 30-year fixed mortgage rates in 2021 created a surge in home buying that largely contributed to this debt, experts say.

The decision to pile on debt was driven by the promise of higher interest rates this year. Due to high inflation, the Federal Reserve is preparing to raise short-term interest rates soon.

This would make mortgages, credit card interest, and auto loans more expensive, among other credit categories.

According to the survey, credit card debt also rose $52 billion to $860 billion in the last quarter of 2021.

Although this increase includes the holiday shopping season, it still is the largest increase in a single quarter that’s been observed in the New York Fed’s 22 years of performing the survey.

However, the survey also showed that credit card spending is $71 billion below pre-pandemic levels. This may change soon when companies begin to lift limits.

As 30-year fixed mortgage rates stretched above 3 percent during the quarter, borrowers rushed to purchase or refinance ahead of expert consensus that rates would soon be rising.

Many experts still predict rates will end this year at around 4 percent to 4.5 percent, although rates have already reached as high as 3.83 percent this year.

These increases have begun to curb buyer demand and have halved refinance activity in the past few weeks.

Experts anticipate that the hot housing market is beginning to cool due to rising rates and severe lack of supply.

Currently, home purchases are tilted to higher priced markets, which is pushing average loan sizes to record highs. More inventory is available in these markets.

While some experts believe opportunities have become slim for the average buyer to save on a purchase or refinance, others are quick to remind borrowers that rates remain historically favorable overall.

Above all, market experts say borrowers should speak to their lender about what options remain for their personal financial situation.There are several factors that play into a borrower’s personal rate, such as credit score, debt, down payment amount, and the location they are seeking to purchase, experts say.

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