Minneapolis (CNN) — The resilient consumer has kept the US economic engine running, but it’s coming at a big cost: Americans are piling up record credit card balances, and more and more are falling behind on those payments.
During the third quarter, credit card balances hit a fresh high of $1.08 trillion, rising $48 billion from the prior quarter and leaping by a record $154 billion from the year before, according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit released Tuesday.
The year-over-year increase is the largest since the New York Fed started tracking that data in 1999.
Household debt increased 1.3% to $17.29 trillion in the third quarter.
However, a growing number of households are having difficulty wrangling that debt, which is increasingly more costly amid an environment of painfully persistent inflation and high interest rates.
The latest data also showed that the rate of households becoming delinquent or entering serious delinquency (behind by 90 days or more) on their credit cards was the highest since the end of 2011.
“I think economic inequality is continuing to grow, and that is something that has really accelerated in recent years,” Ted Rossman, senior industry analyst at Bankrate, told CNN.
Subprime auto loan delinquencies are worse now than they were during the financial crisis, he said, attributing that to soaring car prices. Additionally, more people are financing day-to-day necessities with credit cards, he added.
“I think pockets of trouble have started to emerge,” he said.
Newly delinquent auto loan balances continued to climb, as well, with transitions into serious delinquencies hitting 13-year highs, survey data showed.
Possible signs of ‘real financial stress’
“Credit card balances experienced a large jump in the third quarter, consistent with strong consumer spending and real GDP growth,” said Donghoon Lee, economic research adviser at the New York Fed, in a statement. “The continued rise in credit card delinquency rates is broad based across area income and region, but particularly pronounced among millennials and those with auto loans or student loans.”
New York Fed researchers said the spike in households transitioning into delinquency is “surprising” and “unusual,” given the relative strength of the economy and labor market. They plan to dig more into the potential causes when conducting future surveys but said the increase could be attributable to changes in lending standards, consumers overextending themselves or a signal of “real financial stress.”
Still, thanks mostly to higher-quality mortgage loans, overall delinquencies remain below pre-pandemic levels, New York Fed researchers said.
“Since then, though, it’s been a really steep line upward,” Rossman said. “I definitely think that high inflation and high credit card rates are big contributors here.”
“This report doesn’t distinguish between what’s paid in full and what’s not, and it’s roughly half and half in terms of the number of card holders who pay in full versus those who truly carry debt from month to month,” he said.
The higher balances could also be a reflection of population growth, the rise in e-commerce and a strong economy, he said.
“It’s not all bad,” he noted.
New mortgages fall, along with consumer confidence
Mortgage originations fell to $386.37 billion, continuing a period that’s considerably below the high-flying housing activity in 2020 and 2021. This year is on pace to have the lowest origination values since 2014, New York Fed data shows.
Even if consumers are in strong enough financial shape to buy a home, many aren’t pulling the trigger, according to a new survey released Tuesday by mortgage giant Fannie Mae. About 85% of respondents said it was a “bad time” to purchase a home, citing high prices and mortgage rates.
Home prices climbed in September on a year-over-year basis for the third month in a row, according to the National Association of Realtors. And the average rate for a 30-year, fixed-rate loan surpassed 7% in mid-August and hasn’t looked back since, according to Freddie Mac.
Consumers’ ongoing frustration with the housing market is only getting compounded by increasing feelings of pessimism toward the larger economy, said Doug Duncan, Fannie Mae senior vice president and chief economist.
In the October survey, 78% of respondents said the economy is on the “wrong track,” which is up from 71% in September, he said.
“Across all income groups, inflation has consistently driven the ‘wrong track’ belief since the end of last year, suggesting consumers are fed up with the high prices of many goods and services,” Duncan said in a statement..
Although the labor market is strong and wages have risen in the past year, he said that consumers may believe that their purchasing power has not kept up with prices. According to Fannie’s survey, 69% of consumers say their incomes are “about the same” compared to the previous year.