- Card debt set another record, but it is growing more slowly. U.S. credit card balances rose 4.2% year over year to $1.29 trillion in the third quarter, the highest level recorded by the Federal Reserve Bank of New York, according to its quarterly report on household debt and credit released Tuesday, though the pace of growth has eased from recent years, American Banker reported.
- Delinquencies look to be stabilizing at a high level. The 90-day card delinquency rate was 12.90%, up from 12.41% a year earlier but down slightly from 12.92% in the second quarter, compared with 8% in the second quarter of 2023, when card debt first exceeded $1 trillion. The New York Fed said transitions into early and serious delinquency “improved slightly.”
- Household borrowing rose across the board. Total household debt increased by $334 billion, or about 1.8%, in the quarter to $19.1 trillion, with mortgages, auto loans and home equity lines all rising. Home equity line balances jumped $23 billion, the largest increase since 2005, to $481 billion, their 18th straight quarterly gain, CNBC reported.
- The stress is uneven. Analyst Ted Rossman of Money Management International called the card data “Goldilocks numbers — not too hot, not too cold,” but the New York Fed said the delinquency gap between borrowers in higher-income and lower-income areas has widened, with lower-income borrowers bearing more stress.
What Happened?
The New York Fed’s figures show credit card debt has climbed 61% over the past five years as balances rose in the years following the pandemic. About half of the increase in mortgage debt in the quarter was tied to a re-reporting of balances after a reporting gap in the previous quarter, the report said. Delinquency rates for cards issued during the pandemic are easing, and the New York Fed said the elevated delinquencies of recent years “may prove to be more of a pandemic-era echo than a permanent feature of the credit card market.” The data landed the same day the Bureau of Labor Statistics said consumer prices rose 0.4% in October, adding pressure on the Federal Reserve to raise rates.
Why It Matters?
Steady card growth supports the view that consumers are still spending despite gloomy sentiment about affordability; as Rossman put it, “If credit-card balances were falling, that would probably say something negative about the economy.” For card issuers, a delinquency rate that has hovered in the 12% range for most of the past seven quarters points to credit quality that has stopped deteriorating rather than one that is improving outright. The surge in home equity borrowing is a sign of how the rate lock-in effect is reshaping household finance: 49.1% of outstanding mortgages carried rates of 4% or lower in the second quarter, according to a Realtor.com analysis cited by CNBC, so owners are borrowing against equity instead of moving.
What’s Next?
Rossman said continued balance growth of around 4% could be viewed positively and “would be sustainable,” but a Fed that hikes again in December would add to borrowing costs for revolving and variable-rate debt; HELOC rates move with benchmarks such as the prime rate, which is influenced by the fed funds rate, and the average rate for a $30,000 HELOC was 7.49% as of Nov. 4, according to Bankrate data cited by CNBC. Watch whether the widening gap between higher- and lower-income borrowers shows up in issuers’ charge-offs, and whether pandemic-era card vintages keep fading from the delinquency data.
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Source: American Banker, CNBC
