US household debt rose slightly in the third quarter, reaching the highest level ever as record-low interest rates continue to fuel a surge in home loan borrowing – especially among consumers with good credit.
Total debt increased 0.6 per cent to $14.35 trillion from $14.27tn in the second quarter, the Federal Reserve Bank of New York said in a report published on Tuesday. The gain was led by a surge in mortgage loans, which were at $1.05tn, the second highest volume in the history of the data and second only to the historic refinance boom 17-years ago.
“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, in a statement. “The data likely reflects improvements in economic activity and the labour market.”
Record-low mortgage rates have prompted Americans with good credit to refinance and cut their borrowing costs. But that opportunity hasn’t been available to everyone. About 72 per cent of home mortgages originated during the third quarter went to borrowers with a credit score above 760, the highest share ever recorded in figures dating to 2003, while less than 2 per cent were for borrowers with scores under 620, the lowest share recorded.
“We continue to see strong demand from clients to refinance mortgage and consumer debt,” Glenn J. Williams, chief executive of Primerica said on the firm’s earnings call on November 5.
The surge in home loans helped offset a decline in credit card debt. Balances on credit cards fell to $807 billion, the lowest total since 2017, the data show. A nationwide drop in travel, and the related spending that occurs for airline tickets, hotels and other vacation musts, bears much of the blame for less spending, according to Paul Siegfried, who oversees TransUnion’s credit card business. In recent years consumers typically ran up their card balances during the holiday shopping season in the fourth quarter, a trend that the coronavirus may interrupt.
About 54 per cent of respondents to a TransUnion survey late last month said the pandemic has affected their finances, and roughly half of those people said they expect to reduce their retail and discretionary spending.
