Credit card balances fall again as consumer spending rebounds

U.S. households reduced their credit card balances again in the first quarter, the New York Federal Reserve said on Wednesday, even as vaccinations and reopenings helped boost consumer spending.

Card balances fell $ 49 billion in the quarter as stimulus payments and more limited travel and entertainment business put Americans in better shape to pay off revolving debt.

Debt reduction was smaller than the quarterly drop of $ 76 billion at the start of the pandemic, but still marked the second-largest drop in data. The New York Fed’s Quarterly Household Debt and Credit Report uses numbers dating back to 1999.

“The decline in the first quarter of 2021 is remarkable as it contrasts sharply with the ongoing recovery in the retail sector as the US economy reopens and travel picks up,” wrote a team of Fed officials from New York in a blog post.

Although credit card balances continued to decline, rising mortgage, auto and student loan balances pushed aggregate household debt up by $ 85 billion. U.S. households had a total debt of $ 14.64 billion in the first quarter, up nearly $ 500 billion since late 2019.

The reduction in credit card balances occurred among residents of high-income and low-income areas, although members of the first group paid off their debts at the highest rates. The trend is evident across all age groups, with borrowers aged 20-29 accounting for the smallest share of the decline, but still posting declines.

Repayments weighed on card revenues at major banks, although card issuers also benefited from better credit quality.

Stimulus funds and high savings have been a “headwind for loan growth,” Discover Financial Services CEO Roger Hochschild told analysts last month. But Discover is not “too alarmed about it,” he added.

Hochschild has said he expects debt repayments “to start dropping as we pass the truly extraordinary levels of government stimulus.”

Jennifer Piepszak, CFO of JPMorgan Chase, also expected signs of a pickup in borrowing in the second half of 2021, with consumer spending already rebounding. But she told analysts that the expected increase in borrowing “may come a bit later given the degree of deleveraging we’ve seen.”

US households continued to increase their mortgage balances, which jumped $ 117 billion in the first quarter. Mortgage originations, including refinances, reached $ 1.1 trillion and nearly matched last year’s records. Most of the loans have gone to borrowers with higher credit scores. Those with scores above 760 accounted for a record 73% of sales.

Foreclosures fell to their lowest level since data began in 1999, with about 11,000 consumers receiving a new notice of foreclosure on their credit reports in the first quarter. Forbearance programs help keep delinquencies under control, with the share of mortgage balances overdue for at least 90 days falling to an all-time low of 0.59%.

Default rates across all categories of consumer assets continued to decline during the quarter, with only around 3.1% of outstanding debt at some stage of default at the end of March, down 1 .5 percentage point compared to the first quarter of 2020. at least 90 days late or has been marked as “seriously deviating”.

The number of consumers whose bankruptcy was added to their credit report also hit a new all-time low in the quarter, with 114,000 new bankruptcies.

Fewer people have applied for new consumer credit, with 116 million credit applications in the past six months down 3% from the previous quarterly report. Account openings were down 1.4% from the previous quarter, but 14% from the first quarter of last year.

Some lenders plan to step up their marketing efforts to boost loan growth. Discover, who backed out of commercialization during the pandemic as it tightened its underwriting criteria for loans, said last month it was loosening again, even though its standards had not yet returned to levels of ‘before the pandemic.

“We are happy with the feedback we will be generating from our marketing, even in a more intense environment,” said Hochschild.

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