US household debt rose by $1 trillion in 2021, the biggest rise since 2007

In 2021, the consumers Americans increased their indebtedness at the fastest rate in the last 14 years, as they took out more loans to buy houses, cars and other increasingly expensive goods, according to a report published by the Federal Reserve (Fed) from New York.

Total household debt grew by $1 trillion last year, the biggest increase since 2007, according to the New York Fed’s quarterly report on household debt and credit. The total debt balance is now $1.4 trillion higher than it was at the end of 2019.

“The aggregate balances of newly opened auto and mortgage loans increased strongly in 2021, corresponding to the rise in home and auto prices,” said Wilbert Van Der Klaauw, senior vice president at the New York Fed, it’s a statement.

More than $4.5 trillion in mortgages were originated in 2021, reaching an all-time high for the database, which began in 2000. Mortgage balances increased by $258 billion in the fourth quarter, to $10.93 billion at the end of December.

Auto loan originations returned to pre-pandemic trends, but loan sizes rose in response to rising prices, the New York Fed researchers said.

“As car prices have skyrocketed, buyers have taken out more loans to finance the added cost,” the researchers wrote in a blog post published Tuesday.

In a sign that consumers are returning to their pre-pandemic spending habits, credit card balances also increased by $52 billion in the fourth quarter. The largest quarterly increase seen in data history, but credit card balances are still $71 billion lower than at the end of 2019.

Credit card use typically increases in the fourth quarter as people shop for the holidays, but the increase could also reflect rising prices of goods and services, the researchers said.

So far, households have been able to absorb the biggest debt burdens and delinquencies remain low, thanks in part to savings built up before the pandemic and forbearance programs, the researchers said.

Still, it will be important to watch how some borrowers fare when they have to resume student debt payments in a few months, the New York Fed researchers said.