The 2022 inflation burdened many sectors of the US economy. Debt gains in housing surged to close in the second quarter, totalling to $16 trillion, with mortgage balances rising to 11.4 trillion. Credit card balances which rose by $46 billion, and the auto loan debts that spiked to $199 billion also contributed to this record even as American consumers borrowed more money due to the increase in prices, the Federal Reserve stated.
Research shows that even though all debts(except student loans) significantly increased, the shooting up of household debt points to the higher origination amounts per loan. According to a New York Fed, it is essential to keep an eye on this $2 trillion rise from the 2019 pre-pandemic household debt since further increase will be a cause of concern to the economy.
Mortgage Demand Drops In Current Housing Climate
The housing market has seen dark days in 2022 as buyers pump the breaks on home purchases and mortgage loan demands drop. Mortgage demand reached its lowest in 22 years, which can be attributed to the high-interest rates set by the Federal Reserve in March. These mortgage rates peaked by 2% last year, making homes unaffordable for many. According to the Mortgage Bankers Association, the current economic outlook led to a drop in mortgage loan application volume that lasted close to a month in July. When the mortgage rates dropped, in the last week of July the demand was expected to make a turn; however, mortgage demands kept drying up. In August, economists noted a slight increase in mortgage applications by 1.15%; however, even though the mortgage loan demands remain considerably low at less than 5.5%.
Conclusion
Projections shown that household debt is expected to increase in the coming months. As the Federal Reserve continues to press on with its efforts to control prices, economists are optimistic the Fed will extinguish the looming recession.