WASHINGTON– American households took on more than $1 trillion in new debt during 2021, according to new data.
The increase, the largest since 2007, was largely a function of the sharp rise in prices for homes and cars.
As CUToday.info has reported, the price of the average U.S. home rose close to 20% in 2021, boosting mortgage balances and pricing out many middle-class buyers (see separate story). Rising prices for new and used cars drove auto-loan originations to a record $734 billion, boosting many credit union loan portfolios.
Economists with the New York Fed told the Wall Street Journal the rise in consumer borrowing isn’t cause for alarm, as wealth increased across all income levels during the pandemic.
However, much of the gains have accrued to the richest Americans. Delinquency levels on consumer loans are still hovering around record lows, as credit union industry data show.
Assets That Appreciate
“What’s more, some 87% of the new debt is tied to homes that can appreciate over time, allowing borrowers to build wealth,” the Journal stated in its analysis. “Today’s home buyers also are in better financial shape. Subprime borrowers accounted for just 2% of the mortgage debt originated in the fourth quarter of 2021, down from an average of 12% in the years before the financial crisis.”
Americans also added $52 billion to their credit-card balances in the fourth quarter, the largest quarterly jump on record, according to New York Fed and Equifax data. Still, total credit-card balances stood at $856 billion at the end of 2021, down from $927 billion two years earlier.
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