The New York Federal Reserve posted its quarterly report covering household debt earlier this week. The report noted that outstanding credit card debt now tops $1 trillion. In total, household debt surpassed $17.05 trillion – the highest amount on record. The authors of the report were relatively subdued in their assessment of rising debt during a period of rapidly rising interest rates.
Moody’s, in their review, said delinquencies for both auto loans and cards are now above pre-pandemic levels – and will likely continue to rise rapidly as the job market slows.
To quote the report:
The rate of new delinquencies on household debt of all types increased to 3.18% in the second quarter of 2023, up 18 bps from Q1 2023 and 77 bps from Q2 2022, but because of low mortgage delinquencies remains well below the 4.67% rate in Q2 2019.
The rate of new credit card and auto loan delinquencies continues to accelerate. New credit card delinquencies were 7.20% in Q2, up 69 bps from Q1 and now 34 bps above the Q2 2019 level of 6.86% despite rapid credit card balance growth suppressing the Q2 increase in delinquencies. New auto loan delinquencies were 7.28% in Q2, up 40 bps from Q1 and now 35 bps above Q2 2019 levels of 6.93%. New residential delinquencies were 2.56% in Q2, up 13 bps from Q1 but still 87 bps below Q2 2019 levels.
Given our current baseline expectation of a mild recession, delinquencies will likely continue to increase. Assuming unemployment peaks near 5%, we project that the rate of new credit card and auto loan delinquencies will likely peak in 2024 at around 9% to 10% versus the 2019 rate of around 7% for both. We also expect new residential mortgage delinquencies to continue to rise, though they are unlikely to reach 2019 levels until at least mid-2024.
Moody’s predicted that total household debt will continue to rise in the coming quarters.
