Mortgage Lock‑In Spurs Recent HELOC Demand
Mortgage balances, the largest component of U.S. household debt, grew by only $77 billion (0.6 percent) in the second quarter of 2024, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. This modest increase reflects a substantial slowdown in mortgage origination; only $374 billion was originated during the second quarter, compared to an average of about $1 trillion per quarter between 2021 and 2022. Meanwhile, after nearly thirteen years of decline, balances on home equity lines of credit (HELOC) have begun to rebound, gaining 20 percent since bottoming out at the end of 2021. In this post, we consider the factors behind this upswing, finding that HELOCs have likely become an attractive alternative to cash-out refinancings amid higher interest rates.
Delinquency Is Increasingly in the Cards for Maxed‑Out Borrowers
This morning, the New York Fed’s Center for Microeconomic Data released the Quarterly Report on Household Debt and Credit for the first quarter of 2024. Household debt balances grew by $184 billion over the previous quarter, slightly less than the moderate growth seen in the fourth quarter of 2023. Housing debt balances grew by $206 billion. Auto loans saw a $9 billion increase, continuing their steady growth since the second quarter of 2020, while balances on other non-housing debts fell. Credit card balances fell by $14 billion, which is typical for the first quarter. However, an increasing number of borrowers are behind on credit card payments. In this post, we explore the relationship between credit card delinquency and changes in credit card “utilization rates.”
An Update on the Health of the U.S. Consumer
The strength of consumer spending so far this year has surprised most private forecasters. In this post, we examine the factors behind this strength and the implications for consumption in the coming quarters. First, we revisit the measurement of “excess savings” that households have accumulated since 2020, finding that the estimates of remaining excess savings are very sensitive to assumptions about measurement, estimation period, and trend type, which renders them less useful. We thus broaden the discussion to other aspects of the household balance sheet. Using data from the New York Fed’s Consumer Credit Panel, we calculate the additional cash flows made available for consumption as a result of households’ adjustments to their debt holdings. To detect signs of stress in household financial positions, we examine recent trends in delinquencies and find the evidence to be mixed, suggesting that certain stresses have emerged for some households. In contrast, we find that the New York Fed’s Survey of Consumer Expectations still points to a solid outlook for consumer spending.
Who Uses “Buy Now, Pay Later”?
“Buy now, pay later” (BNPL) has become an increasingly popular form of payment among Americans in recent years. While BNPL provides shoppers with the flexibility to pay for goods and services over time, usually with zero interest, the Consumer Financial Protection Bureau (CFPB) has identified several areas of potential consumer harm associated with its growing use, including inconsistent consumer protections, and the risk of excessive debt accumulation and over-extension. BNPL proponents have argued that the service enables improved credit access and greater financial inclusion, with approval being quick and relatively easy. More research is needed to assess the overall risks and benefits of BNPL for consumers. As a first step, we draw on new survey data to examine the background and circumstances of consumers who receive and take up BNPL offers. We find both the availability and use of BNPL to be fairly widespread but see disproportionate take-up among consumers with unmet credit needs, limited credit access, and greater financial fragility. While BNPL expands financial inclusion, especially to those with low credit scores, there is a risk that these payment plans contribute to excessive debt accumulation and over-extension.
Not Just “Stimulus” Checks: The Marginal Propensity to Repay Debt
Households frequently use stimulus checks to pay down existing debt. In this post, we discuss the empirical evidence on this marginal propensity to repay debt (MPRD), and we present new findings using the Survey of Consumer Expectations. We find that households with low net wealth-to-income ratios were more prone to use transfers from the CARES Act of March 2020 to pay down debt. We then show that standard models of consumption-saving behavior can be made consistent with these empirical findings if borrowers’ interest rates rise with debt. Our model suggests that fiscal policy may face a trade-off between increasing aggregate consumption today and assisting those with the largest debt balances.
Car Prices Drive Up Borrowing
Total household debt increased substantially during the second year of the COVID-19 pandemic, with a $1.02 trillion increase in aggregate debt balances, according to the Quarterly Report on Household Debt and Credit for the fourth quarter of 2021 from the New York Fed’s Center for Microeconomic Data. The yearly increase was the largest seen since 2007 in nominal terms and was boosted by particularly robust growth in mortgage balances, which grew by nearly $900 billion through 2021. Credit card balances, which have followed an unusual path during the pandemic, saw a large seasonal increase in the fourth quarter but remain well below pre-pandemic levels. And student loan balances increased only modestly through 2021 due to lower enrollment and also due to administrative forbearance on federal student loans—the smallest annual increase we’ve seen since 2004. Outstanding auto loan balances grew in 2021 by $84 billion. The $734 billion in newly opened auto loans through the year was the largest volume we’ve seen in our data.
The Role of Educational Attainment in Household Debt and Delinquency Disparities
This post concludes a three-part series exploring the gender, racial, and educational disparities of debt outcomes of college students. In the previous two posts, we examined how debt holding and delinquency behaviors vary among students of different race and gender, breaking up our analyses by level of degree pursued by the student. We found that Black and Hispanic students were less likely than white students to take on credit card debt, auto loans, and mortgage debt, but experienced higher rates of delinquency in each of these debt areas by the age of 30. In contrast, Black students were more likely to take out student debt and both Black and Hispanic students experienced higher rates of student debt delinquency. We found that Asian students broadly followed reverse patterns from Black and Hispanic students by age 30. They were more likely than white students to acquire mortgages and less likely to hold student debt, but their delinquency patterns were in general similar to those of white students. Women were less likely to hold an auto loan or mortgage and more likely to hold student debt by age 30, and in most cases their delinquency outcomes were indistinguishable from males. In this post, we seek to understand mechanisms behind these racial and gender disparities and examine the role of educational attainment in explaining these patterns.
How COVID‑19 Affected First‑Time Homebuyers
Efforts in the spring of 2020 to contain the spread of COVID-19 resulted in a sharp contraction in U.S. economic growth and an unprecedented, rapid rise in unemployment. While the first wave of the pandemic slowed the spring housing market, home sales rebounded sharply over the rest of the year, with strong gains in house prices. Given the rising house prices and continuing high unemployment, concerns arose that COVID-19 may have negatively affected first-time homebuyers. Using a new and more accurate measure of first-time homebuyers, we find that these buyers have not been adversely affected by the pandemic. At the same time, gains from lower mortgage rates have gone to existing homeowners and not to households purchasing their first home.
An Update on How Households Are Using Stimulus Checks
In October, we reported on how households used their first economic impact payments, which they started to receive in mid-April 2020 as part of the CARES Act, and how they expected to use a second stimulus payment. In this post, we exploit new survey data to examine how households used the second round of stimulus checks, abd we investigate how they plan to use the third round.
Do People View Housing as a Good Investment and Why?
Housing represents the largest asset owned by most households and is a major means of wealth accumulation, particularly for the middle class. Yet there is limited understanding of how households view housing as an investment relative to financial assets, in part because of their differences beyond the usual risk and return trade-off. Housing offers households an accessible source of leverage and a commitment device for saving through an amortization schedule. For an owner-occupied residence, it also provides stability and hedges for rising housing costs. On the other hand, housing is much less liquid than financial assets and it also requires more time to manage. In this post, we use data from our just released SCE Housing Survey to answer several questions about how households view this choice: Do households view housing as a good investment choice in comparison to financial assets, such as stocks? Are there cross-sectional differences in preferences for housing as an investment? What are the factors households consider when making an investment choice between housing and financial assets?