Consumer Debt Surpasses $17 Trillion Milestone Amidst Decline in Mortgage Demand

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Consumer Debt Reaches Record High

Consumer debt in the United States has surpassed a significant milestone, reaching a new high of over $17 trillion in the first quarter of 2023, according to a report from the New York Federal Reserve. This increase of nearly $150 billion, or 0.9%, during the January-to-March period demonstrates a continuous upward trend in borrowing across various categories, despite a notable decline in mortgage demand.

Mortgage Originations Hit Lowest Level in Nearly a Decade

In contrast to the overall increase in consumer debt, new mortgage originations, including refinancings, experienced a significant decline. The total amount of new mortgage loans, which stood at just $323.5 billion, reached its lowest level since the second quarter of 2014. This represents a 35% decrease from the previous quarter and a substantial 62% drop compared to the same period the previous year.

Impact of Rising Interest Rates on Mortgage Debt

The decline in mortgage originations can be attributed to rising interest rates. Since the peak of $1.22 trillion in the second quarter of 2021, home loan activity has steadily decreased as interest rates climbed. The Federal Reserve’s actions to combat inflation resulted in 10 rate increases, equating to a total of 5 percentage points. Consequently, 30-year mortgage rates, which reached a low of 2.65% in January 2021, have now risen to approximately 6.4%.

Refinancing Boom Ends, but Lasting Effects Remain

Although higher interest rates contributed to the decrease in mortgage demand, total mortgage debt still increased slightly to $12.04 trillion, rising by 0.1 percentage point from the previous quarter. The impact of historically low rates can still be observed, as borrowers took advantage of refinancing opportunities to reduce their monthly payments and free up funds for other expenses. However, this refinancing boom has now subsided, according to Andrew Haughwout, director of household and public policy research at the New York Fed.

Conclusion: Despite declining mortgage demand, consumer debt in the United States has reached a record-breaking $17 trillion. While mortgage originations have plummeted, the effects of previous refinancing booms are expected to have long-lasting consequences. Rising interest rates have played a significant role in reshaping the housing market, and borrowers now face the challenge of higher mortgage rates. It remains crucial to monitor the impact of these debt levels on the overall economy and the financial well-being of individuals and households.

Source: ©Jeffrey Greenberg/Universal Images Group via Getty Images ; CNBC
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Yustika Kusuma Putri, she is social media marketer from Indonesia. I currently work as a Media Manager in Technologie Omicrom Sendas inc.
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