news

Cailianshe News, July 22 (Editor: Xiaoxiang)The U.S. economy has indeed performed well in the past year amid high inflation and high interest rates, but for many U.S. borrowers, the good times have not been sweet...

Forecasts of a U.S. recession have mostly vanished this year; employers are officially adding jobs at a seemingly healthy clip each month; and households are continuing to spend as many lock in ultra-low mortgage rates before the Federal Reserve begins aggressive rate hikes in 2022 to tame inflation.

but,The situation for Americans who need to borrow is becoming more precarious.

Note: The dark red line is the total interest expense of unsecured consumer loans, and the light red line is the secured debt

The cost for Americans to buy a home, a car or borrow money on a credit card has reached its highest level in decades after the Federal Reserve raised interest rates nearly a dozen times in the past two years.The total mortgage interest paid by U.S. consumers in 2023 increased 14% from the previous year, according to the U.S. Commerce Department's Bureau of Economic Analysis. Interest on other types of consumer debt, such as credit cards and auto loans, jumped 50%.

This situation has not actually changed since this year.The Fed only expected one rate cut this year in its dot plot at its June meeting, and although expectations of a rate cut have risen this month after inflation and employment data slowed in recent weeks, the benchmark interest rate is likely to remain near a high of 5% before the end of the year.

In fact,Many American households have now spent the large amounts of cash they saved during the pandemic stimulus phase.Although inflation has eased significantly over the past year, the faster-than-usual rate of price increases in recent years has objectively significantly increased the burden on American consumers.

Moody'sData from the analysis company show that more than three-quarters of the excess savings of the American people are currently concentrated in the hands of the top 10% of households - those with annual incomes of $245,000 or more.

Note: Excess savings of people with different incomes

More and more ordinary families are relying on credit card consumption, and they are increasing the scale of credit card loans month by month.

Data from the New York Federal Reserve show that U.S. credit card balances have increased to $1.1 trillion in the first quarter of 2024, the second highest level ever after the fourth quarter of last year, and an increase of about one-third compared to 2022. According to data from TransUnion, a U.S. consumer credit reporting agency, the average credit card debt balance of individual borrowers in the first quarter exceeded $6,000, an increase of nearly a quarter from two years ago.

andEven more worrying is that this growth is occurring at a time when credit card interest rates are at record highs.According to the Federal Reserve, the average annual interest rate on credit card payments this year has reached about 22%, the highest since 1996. In comparison, the average credit card interest rate was only about 15% two years ago.

Borrowers with lower credit scores or store credit cards tend to have higher-than-average interest rates. For these borrowers, higher rates can quickly snowball into a debt. At a typical 29% APR, the minimum monthly payment on an average credit card balance of about $6,200 would be more than $200, according to Bankrate. At 22%, it would be about $175, and at 15%, it would be about $140.

Note: Schematic diagram of interest and principal under different annual interest rates

That has caused a growing number of borrowers, especially those with deep debt, to miss payments. The delinquency rate for credit card accounts exceeded 3% in the first quarter, the highest level since 2011, according to the Federal Reserve. About a third of borrowers who have nearly or completely maxed out their credit cards are delinquent on their balances, according to the New York Fed.

Note: The delinquency rate varies depending on the proportion of credit card limit used. The top one shows the delinquency rate of credit cards that have basically maxed out their credit cards.

For many Americans who didn't buy a home before mortgage rates doubled in 2022, owning their own home has become an increasingly unattainable dream.Potential sellers (i.e., those who already own a property and are considering selling) are unwilling to give up their existing low-interest mortgages, so they choose not to sell their properties, which leads to a decrease in the inventory of properties for sale on the market, keeping prices high. At the same time, the rate of renters defaulting on their debts is significantly higher than that of homeowners.

Note: The percentage of overdue bill payments for homeowners and renters. Gray represents renters and red represents homeowners.

More and more Americans are turning to “buy now, pay later” services for their purchases."Buy now, pay later" is a popular trend in recent years.FintechLoan products, which typically don’t show up on credit reports, are more than a third of Americans who have used at least one buy now, pay later service when checking out, according to Bankrate.

As student loan payments resumed last fall as federal student loan forgiveness programs ended, some student borrowers are in worse financial shape than they were two years ago. Data from the U.S. Department of Education showAbout 40% of student loan borrowers miss their first scheduled payment.

in addition,A growing number of borrowers have also been unable to repay their auto loans since the pandemic triggered a historic rise in car prices.Bank write-offs of soured auto loans recently hit their highest level since 2011, according to Moody’s Analytics.

It's not just auto loan rates that continue to climb, other expenses for car buyers, such as vehicle insurance, maintenance and repair costs, are also soaring.

Data from car research sites Edmunds and Cox Automotive show that more and more auto loan borrowers owe more than their cars are worth, and the number of vehicle repossessions due to inability to repay is also rising...

Note: The percentage of bad auto loans, red represents banks, orange represents non-bank financial institutions

All of these seem to have continued to increase the pressure on the Federal Reserve to cut interest rates.As the chairman of the Federal Reserve, has Powell felt the "pain" of American borrowers?