Surging Consumer Debt Will Pose Risks To Financial Discipline

Over the past year, consumer debt surged  as the Fed raised interest rates aggressively to quell high inflation, with resilient consumers reflecting strong demand.

The inflation shows recent declines,  from 9.1% in June to 7.7% in October 2022, remaining elevated above the  2% inflation target.

With these risks, including rising  consumer debt, households should insulate themselves from risks by  increasing financial discipline.

Lowest Personal Saving Rates In Decades

The US personal savings rate was 3.1% in  September 2022, well below the higher rates during the pandemic and  8.3%% at the end of 2019.

Debt delinquencies may rise with  continued consumer demand fueling high inflation while the Fed continues  to hike interest rates though potentially at slower rates.

Delinquencies Are Rising

Mortgage loans are the largest category, accounting for 71% of household debt, up from 69% at the end of 2019.

Mortgage Debt Is The Largest Component

With the mortgages at 7%, it is common to see reduced originations.

Mortgage Loan Originations Lower Impacted By Rising Mortgage Rates

Mortgage debt delinquencies rose in 3Q2022 to 0.50%, up from 0.44% in 2Q2022 and 0.27% in the previous year.

Mortgage Delinquencies Rose

HELOC balances rose to $322 billion sequentially for the second time in 3Q2022 after years of declining balances.

Home Equity Line of Credit (HELOC) Balances And Delinquencies

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