The pandemic-induced shutdowns seen in mid-March through much of May this year had an impact on the economy as well as household debt. In April, May, and June total household debt slipped due to consumers paying off credit cards and nonessential spending because of the lockdowns. However, the numbers bounced back in Q3 as the economy began to reopen.
The New York Federal Reserve reports that total household debt rose $87 billion (0.6%) to $14.35 trillion, a record high, in Q3 2020, and above the pre-pandemic levels of $14.30 trillion in Q1 of this year. The increase was due in part to a surge in mortgage balances — the largest component of household debt — rising by $85 billion, a record high, to $9.86 trillion on September 30, 2020. Here’s a snapshot of some of the numbers in Q3:
- There was $1.05 trillion in newly originated mortgage debt in Q3, the second-highest volume in the history of the series, just below the $1.2 trillion in Q3 2003.
- Home equity lines of credit declined by $13 billion to an outstanding balance of $362 billion.
- Credit card balances fell by $10 billion to $807 billion and declined by $120 billion in the first three quarters of 2020.
- Auto loans rose by $17 billion to $1.36 trillion, a record high.
- Student loans increased by $9 billion to $1.55 trillion.
“Mortgage originations, including refinances, continued on their upward trend as homeowners continue to take advantage of the low interest rate environment,” said Donghoon Lee, research officer at the New York Fed.
Bottom line: Mortgage rates are at record lows while home prices continue to push higher due to low inventories. Now is a great time to purchase a new home or refinance your existing mortgage.
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