US Household Debt Increased by $1 Trillion Last Year... Largest Rise Since 2007

Impact on Housing and Car Purchases... Fed: "Not a Level to Be Alarmed About"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] Household debt in the United States surged by more than $1 trillion last year, marking the largest increase since just before the global financial crisis in 2007.

On the 8th (local time), the New York Federal Reserve Bank (FRB) announced that U.S. household debt increased by $1.02 trillion (approximately 1,198.5 trillion KRW) last year, driven by rising balances in mortgage and auto loans. This is the largest jump since $1.06 trillion in 2007. Total debt rose from $14.6 trillion in 2020 to $15.6 trillion last year.

Household debt appears to have been primarily used for purchasing homes and automobiles. The average home price in the U.S. rose nearly 20% in 2021 alone, and due to price increases in both new and used cars, auto loans reached a record high of $734 billion.

However, economists at the Federal Reserve assessed that this increase in consumer loans is not at a level that should raise alarm. The Fed stated, "Wealth increased across all income levels during the COVID-19 pandemic," pointing out that consumer loan delinquency rates remain at historically low levels.

Additionally, about 87% of new debt is tied to housing, which is relatively stable, and the financial condition of current homeowners is also sound. The share of subprime mortgage borrowers in mortgage debt that arose in the fourth quarter of last year was only 2%, significantly lower than the average of 12% seen in the years before the financial crisis, which helps reduce concerns.

The Fed cited its quarterly report on household debt and credit, based on credit reports from the U.S. credit rating agency Equifax, stating that credit card balances increased by $52 billion in the fourth quarter of last year. It is analyzed that suppressed demand for travel and entertainment, which was impossible during the early spread of COVID-19, exploded at the end of last year. Credit card balances sharply declined in the early pandemic period, which was attributed to reduced consumption and stimulus payments. As of the end of last year, total credit card balances stood at $856 billion, a 7.7% decrease compared to two years ago ($927 billion).