Wednesday, December 7, 2022
HomeLoansin the face of inflation, loans rise, as do defaults

in the face of inflation, loans rise, as do defaults

Total US household debt totaled $1.651 billion in the third quarter.

US households continued to borrow in the third quarter, at a much higher level than last year, to finance their purchases, despite inflation at a 40-year high, but defaults are also rising. Total U.S. household debt stood at $1.651 billion in the third quarter, up $351 billion, or 2.2%, from the same period last year, according to a report released Tuesday by the New York Fed.

This is 2.36 billion more than at the end of 2019, before the Covid-19 pandemic, specifies this regional branch of the US central bank in a press release. “Credit cards, home loans and auto loans continued to increase in the third quarter of 2022, reflecting the combination of robust consumer demand and higher prices”explained Donghoon Lee, economist at the New York Fed.

However, he clarified that “New home loans have slowed to pre-pandemic levels amid rising interest rates”. As for the balance on credit cards widely used in the US for everyday purchases, it saw its biggest year-over-year increase in 20 years, up 15%.

Big interest rate hike

The only exception: student loans, after President Joe Biden announced in late August that part of the burden on borrowers would be released. But faced with this accumulation of debt, it is becoming difficult for some households to repay their installments, and “the share of unpaid debt has increased for almost all types” credit, reports the New York Fed.

Inflation this year in the US reached its highest level since 1981. After peaking at 9.1% year-on-year in June, price increases slowed but remained very strong in July, August and September at 8.5%, 8, 3% and 8.2%. , according to the CPI index, which refers. Faced with this, the Fed has raised the key interest rate since March, so that the banks also raise the interest rate on the loans they provide to households and companies. Ultimately, the goal is to slow down consumption to ease the pressure. Thus, mortgage interest rates, which have remained at historic lows for more than a year, have been rising since the beginning of 2022, now above 7% for a 30-year loan.

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