Stack of credit cards

Market Insider: May 17, 2022

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U.S. Money Reserve

May 17, 2022

Consumer household debt rose to $15.84 trillion in the first quarter of 2022, according to data from the Federal Reserve. This increase was largely driven by mortgages. While consumer debt continues to grow, the cost of borrowing may also become more expensive.

Consumer debt has seen a record increase.

One major source of consumer debt is credit card debt. According to the Federal Reserve Bank of New York’s quarterly report on household debt and credit, Americans opened a record 537 million credit card accounts in the first quarter of 2022, bringing additional credit card debt available to a record $3.28 trillion. Rising prices are a major contributing factor in the recent growth of credit card debt, according to a May 10, 2022, report by Bloomberg.

The largest source of consumer debt, however, is mortgages. According to a May 10, 2022, report by CNBC, mortgages make up 71% of all household debt, and in the first quarter of 2022, mortgage balances increased by $250 billion. Meanwhile, mortgage interest rates may be about to increase.

Mortgage rates have been affected by the Federal Reserve’s attempts to lower inflation.

Seesaw with sacks of money balanced against a cutout of a house

On May 4, 2022, the Federal Reserve raised the federal funds rate by half a percentage point. This hike placed the federal funds rate in a range of 0.75–1%. The federal funds rate dictates how much banks charge each other for loans and is tied to a variety of adjustable-rate consumer debt items.

Mortgage rates rose as well, driven by this interest rate hike. On May 5, 2022, housing finance giant Freddie Mac reported that the average rate on a 30-year fixed-rate mortgage jumped to 5.27%. A year ago, the average rate on a 30-year fixed-rate mortgage was 2.69%. Similarly, the five-year adjustable-rate mortgage now averages 3.96%, whereas one year ago, that rate averaged 2.7%.

Mortgages and other forms of borrowing may continue to become more expensive for consumers.

Hand holding upwards red arrow over wooden cutouts of houses

When interest rates rise, it becomes more expensive for consumers to borrow money for a home, car, or other needs. According to MarketWatch, “Mortgage rates are likely to keep climbing because the Fed has raised the federal funds rate just twice in this cycle, and the markets expect several more increases.”

This sentiment is backed by statements from members of the Federal Reserve. On May 10, 2022, New York Federal Reserve President John Williams told reporters at an economics conference that he foresees the next two rate hikes also rising by half a percentage point.

An economic environment of rising interest rates may make borrowing and major purchases more expensive for consumers.


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