While household debt hit a record $ 17 trillion in the second quarter of 2021, many U.S. households have felt less financial stress this year thanks to government policies related to Covid-19.
This is according to the Federal Supervisory Council for Financial Stability, which published its annual report for 2021 on Friday. The council was created by law following the financial crisis of 2008-2009.
The report found that while many households have been supported by more generous unemployment insurance payments and stimulus checks, some people still face financial hardship, especially if they work in industries that have been more hard hit by the pandemic.
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Still, there are signs that the economic recovery has helped strengthen Americans’ financial security.
While household debt is high, the ratio of that debt to personal disposable income is “well below its 2007 high and slightly lower than pre-pandemic levels,” according to the report.
In addition, the household debt ratio, which measures total household debt payments relative to disposable income, is quite low due to rising incomes and low interest rates.
The personal savings rate soared in April 2020 and last March as a result of direct payments from the government, although it returned to its long-term average in September.
Yet Americans can feel wealthier because of the increase in the equity in their homes, as well as gains in the stock market.
Although household net worth fell 5.6% in the first quarter of 2020, it has since rebounded to all-time highs.
However, Americans continue to take on debt, with consumer credit accounting for about 25% of total household debt. This includes credit cards, auto loans, installment loans, and student loans.
As credit card debt declined in the midst of Covid-19, auto and student loan balances increased.
Loans for subprime borrowers – those with less than ideal credit – declined in 2020 and 2021, possibly due in part to the strict lending standards for this population. However, fewer borrowers can now be classified as subprime due to Covid-19 relief programs, as a requirement of the CARES Act for overdue loans to be reported as not past due to credit reporting companies. who may have raised some credit scores.
Policies implemented during the pandemic have also contributed to a drop in credit card and student loan default rates.
However, the share of mortgages in some form of non-payment is higher than before the pandemic. Mortgage delinquency rates could increase as mortgage forbearance programs expire at the end of this year. Additionally, eviction rates could increase as federal and state eviction moratoria expire, the report said.