In 2022, inflation pressured budgets and borrowing costs increased, resulting in Americans’ debt balances compounding. As reported by the Federal Reserve Bank of New York‘s Q4 Household Debt and Credit report, aggregate household debt, including all outstanding credit market debt held by consumers, grew by $394 billion in the fourth quarter of 2022 alone, including mortgage balances.
Household debt increased by $254 billion during the fourth quarter due to increased mortgage balances. In part, this was caused by higher mortgage rates, which resulted in higher monthly home loan payments. As of December 31, mortgage balances totaled $11.92 trillion, an increase year over year. As a result, mortgage balances in 2022 increased by nearly $1 trillion.
The Fed report showed that new mortgage originations accounted for $498 billion of the total mortgage debt during the fourth quarter, with the volume dropping closer to pre-pandemic levels. Over $130 billion has been lost in mortgage originations since Q3 2022 when originations reached $633 billion.
Additionally, the percentage of current debts that have become delinquent has increased for nearly all types of debt, indicating that household budgets are being stretched due to rising inflation, costs of borrowing, and other factors.
A record-high level of equity in homeowners’ homes was also tapped during Q4, possibly an indicator that homeowners are borrowing more to keep up with debt.
Yet, foreclosures have remained low despite the rise in seriously delinquent mortgages. As of Q4, only about 34,000 homeowners had newly recorded foreclosures on their credit reports following the lifting of the foreclosure moratorium nationwide. It is still an increase from Q3 when there were 28,500 new foreclosures noted on credit reports.
Household debt has been rising in tandem with the Fed’s aggressive campaigns to lower inflation by raising the Fed rate. Over the past year, the Fed has raised the benchmark interest rate multiple times, with the most recent hike occurring in February of 25 basis points.
Increasing interest rates have adversely affected borrowing costs and the housing market in general. Mortgage rates hovered around 7% as of Feb. 16, and further Fed rate hikes are expected in 2023.