Wednesday, September 28, 2022

Caution: Debt in America is rising to record levels

Home loans surpassed $16 trillion for the first time in the second quarter as rising inflation boosted home and auto loans, according to a New York Fed report. Collective US IOUs at the end of June were $16.15 trillion, up $312 billion, or two more than the previous quarter.

“Americans are borrowing more, but much of the increased borrowing is due to higher prices,” the New York Fed said in a blog post. Mortgage balances rose 1.9 percent, or $207 billion, to nearly $11.4 trillion in the quarter, while new home business declined. That annual increase marked a 9.1 percent increase from a year earlier, when home prices skyrocketed during the pandemic period.

Credit card balances increased by $46 billion in the three-month period and 13 percent last year, the biggest increase in more than 20 years, according to Fed researchers. Non-home loan balances grew 2.4 percent from the first quarter, the biggest increase since 2016.

Student debt was little changed at $1.59 trillion.

The growth in lending comes against a backdrop of an 8.6 percent inflation rate in the second quarter, which includes a 9.1 percent increase in June – the sharpest increase since November 1981. Domestic inflation rose at an annualized rate of 5% in June, 5 percent, and prices of new and used cars rose by 11.4 and 7.1 percent, respectively.

In response to high inflation, the Fed raised interest rates four times in 2022 for a total of 2.25 percentage points. According to Freddie Mac, those hikes have pushed up 30-year mortgage rates to 5.41 percent, up more than 2 percent since the beginning of the year.

Despite rising debt, inflation and high interest rates, the crime rate remains relatively benign. “While debt continues to grow rapidly, households in general have weathered the pandemic well, in no small part due to broad programs to support them,” the Fed said, primarily due to improved credit ratings. held by the borrowers. time in the history of our data.”

Of course, investors should keep an eye on rising debt. However, as long as loan defaults do not increase, there is no risk of a repeat of 2008. Still, against the backdrop of rising interest rates, high loans are a warning sign that sooner or later it could become a problem.

Nuven Dow 30SM Dynamic Overwrite Fund
(WKN: A12HD4)

Caution: Debt in America is rising to record levels

Nation World News Desk
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