Mortgages See Record Growth, Credit Card Balances Dip

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We're spending more on mortgages and using our credit cards less during the pandemic, a trend that only accelerated at the end of 2020, the Federal Reserve Bank of New York said Wednesday.

Mortgage balances, or how much we owe on our homes, grew by $182 billion in the fourth quarter of 2020, the biggest single quarterly jump since 2007, according to the New York Fed's superlative-filled Quarterly Report on Household Debt and Credit. The increase in mortgage balances was fueled by another record: a historic amount of real estate entering the process of mortgage origination. Origination, which includes new mortgage and refinancing applications, reached $1.2 trillion, surpassing the volume seen in a 2003 boom.

The housing market as a whole has taken off during the COVID-19 pandemic, driven by record low interest rates and a desire for more space. But a recent uptick in rates could begin to hamstring the market, particularly since listings are in such short supply. Last week, mortgage applications fell for a second straight week as the average rate on a 30-year fixed mortgage increased to 2.98% from 2.96%, according to the Mortgage Bankers Association. Though still lower than pre-pandemic levels, that's the highest average since mid-November.

Meanwhile, consumers are both spending less and paying off their existing credit card debt. Credit card balances in the fourth quarter dropped $108 billion from a year earlier, the largest year-over-year decline since the New York Fed started monitoring balances in 1999.  

In December, total revolving credit—made up mostly of credit card balances—showed a similar pattern, falling to its lowest level since April 2017.

Retail sales data released Wednesday suggests those conservative spending habits might be starting to change.