Odisha News Hour

US delinquency rates hit a record high after the COVID-19 pandemic: Research

<p>Over the last three months, the amount of debt in the US has grown overall as a result of problems with various forms of borrowing, particularly in the car industry. This is happening as overall challenges continue to be lower than they were prior to the Covid-19 pandemic’s outbreak in 2020.</p>
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<p>In its most recent quarterly Household Debt and Credit Report, the New York Federal Reserve said on Tuesday that the total amount of household debt increased by USD212 billion to USD17.5 trillion in the fourth quarter of 2023.</p>
<p>Delinquency rates and the entry into problematic status both increased in tandem with the debt increase.</p>
<p>According to the New York Fed, 3.1% of outstanding debt was delinquent in some way, which is an increase of 0.0001% from the third quarter. However, compared to the last quarter of 2019 prior to the pandemic, total delinquency rates were 1.6 percentage points lower.</p>
<p>The credit situation in an economy that has been expanding rapidly despite record low unemployment and increasing wages is described in the New York Fed report. However, at the same time as inflation has been strong, the US central bank has rapidly raised interest rates and maintained high short-term borrowing costs, making credit more costly and difficult for borrowers to manage.</p>
<p>Some of the problems showed up as higher than average delinquent transition rates for all debt categories, with the exception of student loans, which went up toward the end of 2023. Specifically, 7.7% of auto loans and 8.5% of credit card loans had defaults.</p>
<p>Given that many borrowers having experienced a period of forbearance and forgiveness followed by a return to payments, student loan payments are presently in an unusual scenario.</p>
<p>The historical lows for delinquency rates that were attained at the end of 2022 have been climbing, and families had solid financial records before to the pandemic, which were subsequently strengthened by trillions of dollars in government support.</p>
<p>“This has meant that while credit growth has accelerated, debt servicing costs have risen and delinquency rates have increased, the broad credit picture of the U.S. is not alarming,” Gregory Daco, chief economist at Ernst & Young, wrote.</p>
<p>“What is more, with many homeowners locked in at low mortgage rates… The effects of the Fed’s historic tightening cycle have been much more muted than expected.”</p>
<p><strong>CREDIT CARD INSUMMERS</strong><br />
In a blog post that accompanied the findings, the New York Fed said that despite a reduction in government assistance initiatives, delinquency rates have been increasing since relatively low levels in 2021.</p>
<p>According to experts from the New York Fed, default rates for vehicle loans have risen beyond pre-pandemic levels, “and the worsening appears to be broad-based”.</p>
<p>“Loans opened during 2022 and 2023 are, so far, performing worse than loans opened in earlier years, perhaps because buyers during these years faced higher car prices and may have been pressed to borrow more, and at higher rates,” they said.</p>
<p>Higher rates of default “merit monitoring in the months ahead, particularly with the amplified distress shown by borrowers in lower-income areas.”</p>
<p>According to the research, fourth-quarter car loan balances increased by USD12 billion to USD1.61 trillion.</p>
<p>According to the data, the total amount of new mortgage borrowing for housing increased by USD112 billion to USD12.25 trillion in the fourth quarter.</p>
<p>In the last three months of 2023, credit card balances increased by USD50 billion to USD1.13 trillion, while student loan balances increased by USD2 billion to USD1.6 trillion.</p>
<p>The Federal Reserve Bank of New York reported that “serious credit card delinquencies increased across all age groups, notably with younger borrowers surpassing pre-pandemic levels” .</p>
<p>It also noted that, for the sixth consecutive quarter, more mortgage loans were taken out using home equity lines, but the percentage of mortgage loans going into default remained historically low.</p>