U.S. household debt grows at the fastest rate in 15 years

 U.S. household debt grows at the fastest rate in 15 years

Americans massively borrowed to take advantage of low interest rates before the expectation that the Fed would raise interest rates in 2022.

A year of massively buying cars and houses has made Americans carry a significant amount of debt. Figures from the New York Fed show that the country's household debt increased by $1 trillion last year. This is the largest annual increase since 2007. Americans have borrowed heavily to take advantage of low interest rates ahead of expectations that the Fed will raise interest rates in 2022.

In the fourth quarter alone, household debt increased by $333 billion to $15.580 billion, the largest quarterly increase since 2007. Of which, mortgage debt and auto loans contributed. great. "The total balance of new home and auto mortgage loans will increase sharply in 2021, matching the strength of home and auto prices," said Wilbert Van Der Klaauw, senior vice president of the New York Fed.

Homes under construction in Tampa, Florida, May 5, 2021. Photo: Reuters

Homes under construction in Tampa, Florida, May 5, 2021. Photo: Reuters

Along with that, the US recorded $ 734 billion in new car loans last year, the largest increase in Fed data, bringing total outstanding loans to $ 1.460 billion. Borrowing to buy a car increased sharply in part due to the sudden increase in car prices throughout 2021.

Credit card debt increased by $52 billion in the fourth quarter, the biggest quarterly increase in 22 years. However, credit card debt is still $71 billion lower than at the end of 2019.

"The economy is recovering, incomes are rising, and households are likely to take on more debt," said Tim Duy, a University of Oregon professor and chief economist at SGH Macro Advisers. Fed researchers say that some borrowers experiencing difficulties during the pandemic may have a harder time repaying their loans later.