A customer counts his money at the counter while purchasing an item at a Best Buy store in Flushing, New York.
Jessica Rinaldi | Reuters
Consumers ended 2021 with record debt levels, leading to a year in which interest rates are expected to rise significantly.
Total debt at year-end amounted to $15.6 trillion, up $333 billion in the fourth quarter and just over $1 trillion for the year, according to data released Tuesday from the New York Federal Reserve.
The quarterly increase was the largest since 2007 and the annual increase was the largest ever on records since 2003.
The increment comes before a period in which Fed is expected to start raising interest rates because it seems to reduce inflation running at its fastest pace in nearly 40 years. The market expects the central bank to start increasing rates in March and enacted at least five increases this year totaling 1.25 percentage points.
Fed rate move is directly tied to the prime rate that consumers pay for many forms of debt, including credit cards and adjustable-rate mortgages.
A large portion of the increase in debt burden came from mortgages, which raised balances by $890 billion for the year and $258 billion in the fourth quarter, to nearly $11 trillion. Mortgage origination for the year hit more than $4.5 trillion, a new record.
Credit card balances increased by $52 billion in the last three months of the year, a new quarterly record that brings the total debt in that category to $860 billion.
Own price increase rapidly, auto loan balances increased by $90 billion, or 6.6%, to $1.46 trillion. New car prices increased by 11.8% on the year while used car prices increased by 37.3%, according to Labor Department Data.
One area that didn’t grow little was student loans, which rose just above $20 billion for the year and actually declined slightly in the fourth quarter. The Ring programs, although most have expired, are still checking outstanding balances and debts.
New York-based Fed researchers found that an elevated exchange rate environment can affect household cash flows as borrowers adjust. People with low mortgage rates, for example, are likely to be reluctant to go out and buy a new home at higher interest rates, while those who run out of credit card balances may be constrained by financing costs. increase.
