After setting records in 23 consecutive quarters, total household debt fell in the second quarter for the first time since 2014 as shutdowns associated with the coronavirus pandemic tamped down consumer spending.
Total household debt fell by 0.2% from three months earlier, to $14.27 trillion, led by a $76 billion decline in credit card balances, according to the New York Fed and Equifax. Credit card balances had peaked at an all-time high of $930 billion at the end of 2019, but have dropped by 12% since many consumers stopped traveling, visiting restaurants and curbed other activities to comply with social distancing mandates.
Auto and student loan debt remained largely flat when compared with the first quarter, but mortgage balances climbed 0.78% to $9.78 trillion as low interest rates prompted many homeowners to refinance their loans. Mortgage refinances totaled $846 billion, the highest volume since 2013, while new purchase activity declined slightly.
Delinquencies fell across all debt categories, but perhaps most notably in mortgages. About 61% of mortgages that were in early delinquency in the first quarter became current in the second quarter as homeowners took advantage of offers by lenders to skip several months’ payments during the pandemic-induced economic slowdown.
Auto loans declined slightly to $1.3 trillion, most likely because many car dealerships were closed during the second quarter. But indications are that car buying is picking up as the employment picture brightens and more people look to avoid public transportation and ride sharing.
Student loans remained flat at $1.54 trillion, as nearly all student loan borrowers were rolled into forbearance and interest on those balances was temporarily waived as part of the CARES Act.
According to the New York Fed’s Joelle Scally, protections afforded to consumers through the CARES Act have prevented large-scale delinquency from appearing on credit reports and damaging future access to credit. However, she adds that these “temporary relief measures may also mask the very real financial challenges that Americans may be experiencing as a result of the COVID-19 pandemic.”