American Debt: Mortgage Debt Reaches $12.25 Trillion in Q4 2023

Reviewed by Pamela RodriguezReviewed by Pamela Rodriguez

Mortgage balances climbed $112 billion in the fourth quarter of 2023 to $12.25 trillion, according to the latest data from the Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York.

Total household debt stands at $17.5 trillion, while credit card balances increased $50 billion from the prior quarter to a staggering $1.13 trillion. Auto loan debt has steadily increased since 2011 and now stands at $1.61 trillion. Increases in mortgage and auto loan balances could be a sign of a strong economy or could be due to higher home and automobile prices.

Household or consumer debt has increased over the years. To what extent the higher interest rates, as a result of the Federal Reserve rate increases, will have a negative impact on consumers has yet to be fully realized or understood.

Key Takeaways

• The total U.S. mortgage loan balances are $12.25 trillion as of the fourth quarter 2023.
• Total household debt stands at $17.5 trillion, of which $1.13 trillion is credit card debt.
• Aggregate delinquency rates increased for all debt products except for student loans.
• Existing home sales declined year-on-year in Feb. 2024 by 3.3% for a seasonally adjusted annual rate of 4.38 million.
• Rising household debt, including mortgages, and higher interest rates can increase credit risk for those who are financially vulnerable.

Mortgage Debt Seems Like a Good Bet for Lenders

The median credit score of borrowers for new mortgages remained stable at 770 in the fourth quarter of 2023.

Aggregate delinquency rates increased for all debt products except for student loans. In particular, 8.5% of credit card debt and 7.7% of auto loans transitioned into delinquency in Q4 2023.

The percentage of seriously delinquent debt—those with no payments in 90 days or more—also increased for credit cards and auto loans. Conversely, student loans, mortgages, and home-equity debt had the lowest delinquency rates of any type of household debt.

However, the early delinquency transition rates of mortgages increased slightly, by 0.2%, in Q4 2023 but remain historically low.

TransUnion measures more-than-60-day mortgage delinquency rates, using different data than the Federal Reserve, which uses Consumer Credit Panel/Equifax data. According to the agency, the number of delinquent mortgage accounts continues to increase on a year-over-year basis.

TransUnion showed the percentage of delinquent accounts in Q4 2023 jumped to 1.03% from 0.89% in Q4 2022 and 0.75% in Q4 2021.

Mortgage Debt Fuels Total Household Debt

Mortgage debt rose $112 billion to $12.25 trillion, making it the largest component of the $17.5 trillion in total household debt. Balances on home equity lines of credit (HELOC) increased for the seventh consecutive quarter, totaling $360 billion.

Mortgage originations, including new mortgages and refinances, increased $394 billion in the fourth quarter of 2023. Conversely, existing home sales declined year-on-year in Feb. 2024 by 3.3% for a seasonally-adjusted annual rate of 4.38 million. However, February represented a 9.5% increase from January. The median U.S. home price in February 2024 stands at $384,500, representing a 5.7% increase from a year earlier, according to the National Association of Realtors (NAR).

Average mortgage debt per borrower, according to TransUnion, stood at $258,167 in the fourth quarter of 2023. The total number of mortgage accounts is up to 52.9 million—an increase from the 52.6 million accounts reported in Q4 2022.

Where Are Mortgage Rates Going?

With the Federal Reserve Bank (Fed) increasing interest rates, which started in 2022 to combat inflation, mortgage rates have surged to over 7%.

Mortgage rates can vary by state and by mortgage lender. Other factors besides the Fed that can influence your rate include your credit history and credit score.

Although homebuilding has risen, mortgage rates remain high. The 30-year fixed mortgage rate is currently 6.87%, as of March 2024, while the 15-year fixed rate stands at 6.21%. Despite the higher rates, homebuilding and housing demand remains strong due, in part, to a shortage of existing supply, according to Freddie Mac.

Mortgage rates are likely to fall in the coming months and into next year since the Fed forecasted rate cuts for 2024 and 2025 during its March 2024 meeting. Although the Fed cuts the short-term rate, called the federal funds rate, mortgage rates usually follow. The extent or timing of the rate cuts has not yet been finalized.

What Does Increasing Mortgage Debt Mean?

Is the rise in household debt a good thing, or does it mean people are overextending themselves? According to the International Monetary Fund (IMF), rising household debt, including mortgages, and higher interest rates can increase credit risk for those who are financially vulnerable. As consumers have difficulty servicing their debt, credit defaults could increase, particularly for those in precarious financial situations.

What Is Total Mortgage Debt in the United States?

Mortgage debt rose $112 billion in the fourth quarter of 2023 to $12.25 trillion. The total amount of home equity lines of credit (HELOC) has increased for several quarters to $360 billion.

What Is the Total Consumer Debt for 2023?

Americans have $17.5 trillion in total household debt. Auto loan debt has steadily increased since 2011 and now stands at $1.61 trillion.

How Much Credit Card Debt Exists in the U.S.?

Credit card balances increased $50 billion in Q4 2023 from the prior quarter to a staggering $1.13 trillion.

Are Americans Falling Behind on Their Debt Payments?

Delinquency rates increased in Q4 2023 for all credit products except for student loans. The credit products that saw the largest percentage increases in transitioning to delinquency were 8.5% of credit card debt and 7.7% of auto loans.

The Bottom Line

Rising mortgage balances in the fourth quarter of 2023 to $12.25 trillion have yet to show signs of hurting the economy. Total household debt is $17.5 trillion, of which $1.13 trillion is credit card debt. However, the rate increases by the Federal Reserve Bank (Fed) to combat inflation have pushed mortgage rates to over 7%.

As a result, delinquency rates have risen except for student loans. As the year progresses, it will be interesting to see how the tight housing inventory and expected rate cuts from the Fed will impact the housing market and mortgage borrowers.

Read the original article on Investopedia.