Americans piled on more mortgage and credit card debt in the last quarter of 2021, according to new survey data from the Federal Reserve Bank of New York.
Total household debt increased by $333 billion to $15.58 trillion in the final three months of last year. Over the entirety of 2021, household debt grew by $1 trillion — the largest increase seen since 2007.
Households appear to be levering up ahead of higher interest rates, which would make all types of credit categories — mortgages, credit card interest payments, auto loans — more expensive. Because of high inflation, the Federal Reserve is signaling that it will soon likely raise short-term interest rates for the first time since the pandemic began.
New York Fed researchers say they observed a large volume in refinancing in the quarter, which suggests that expectations over higher borrowing costs motivated households to get the best rate available sooner rather than later.
Most of the growth in household debt (about 77% of the quarter-over-quarter increase) came from mortgage balances, where historically low 30-year mortgage rates continued to fuel home buying. Mortgage debt represents the lion’s share of the average household’s total debt.
Anticipation over higher rates have already bled into 30-year rates, with the national fixed rate mortgage average rising above 3% during the quarter. The hot housing market has already shown signs of cooling off, as U.S. home price growth moderates and pending home sales slow.
Credit card spending notably jumped in the last quarter of 2021, as the amount of total credit card debt rose by $52 billion to an aggregate $860 billion. That increase, which also reflects the 2021 holiday shopping season, represents the largest increase observed in a single quarter in the New York Fed’s 22-year history of conducting the survey.
The survey notes that card spending remains $71 billion below pre-pandemic levels.
But credit card spend could blow through pre-pandemic levels soon, as companies lift limits. The New York Fed says aggregate limits on credit card accounts increased by $96 billion to $4.06 trillion, well above pre-pandemic levels.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.