A New York Fed survey using Equifax data notes says that people in the US are tapping a hot housing market and beginning to turn to credit cards for spending as the economy continues to reopen.
The New York Fed reported that the share of total household debt increased in the second quarter from $313 billion to $14.96 trillion, the largest nominal increase in debt since the second quarter of 2007. The increase of 2.1% was the largest since the fourth quarter 2013.
'We have seen a very robust pace of originations over the last four quarters, said Joelle Scally, administrator of the New York Fed team in charge of conducting the survey.
A hot housing market is likely behind the trend, as low - 3% mortgage rates attract prospective homebuyers. Home prices have also been soaring to record levels as short supply leads to bidding wars.
The New York Fed reported $1.2 trillion in new mortgage balances in the second quarter, outpacing volumes seen in the prior three quarters. Unlike the housing boom that led to the 2008 financial crisis, most of the newly originated mortgages go to borrowers with high credit scores.
The survey adds that about 44% of outstanding mortgage balance was originated in the past year, suggesting high levels of mortgage debt churn through the pandemic.
A wild card in mortgage debt: the expiry of mortgage forbearance programs, which could threaten the 2 million borrowers currently relying on the help. The federal moratorium on foreclosures expired on July 31.
For now, the New York Fed said based on an analysis of mortgage balances, the share fell to a historic low of 0.5% about 90 or more days past due.
The survey reported that total credit card balances increased by $17 billion in the second quarter, a slight reversal of the pandemic trend of paydowns in credit cards debt.
Banks are noticing the trend as well, with many large consumer credit card companies forecasting greater loan growth in coming quarters. In the nation's biggest bank, JPMorgan Chase CFO Jeremy Barnum said that credit cards are the 'big driver' of consumer credit in the near future.
'We do believe that the sort of acceleration and the pickup in spend is going to translate to a rebounding of loan growth in card loans Barnum said on an earnings call on July 13, 2013.
In the depths of the pandemic, the economic shutdown cratered consumption and borrowing. Stimulus checks and unemployment insurance led to paydowns of consumer debt across the board, but credit card spending was particularly impacted.
In the January-June 2020 period of March to June, the New York Fed reported that credit card balances saw the steepest decline in the history of the survey.
The New York Fed stated in its latest release that despite the second quarter growth of credit card usage, balances remain $140 billion lower than they had been at the end of 2019.