It’s no secret that today’s economy has affected many people’s lives, including keeping the lights on at the grocery store, gas station, and even home.
But for now, Americans, especially homeowners, appear to be solid when it comes to debt.
According to the New York Fed, total home loan balances have increased for 11 consecutive quarters since the second quarter of 2023, which is to be expected given rising home prices. Growth has been consistently relatively modest, averaging 0.92% per quarter, with a cumulative increase of 9.7% over the period. Home loan balances are at just over $13 trillion, an all-time high, but there’s no need to worry, as delinquency rates remain low and home equity is near record highs. Such growth is sustainable and does not indicate consumer distress in the housing market.
Other categories, such as credit cards, are even more alarming.
We’ll find out what the latest New York Fed data shows when the first quarter of 2026 report is released on May 12th. I expect mortgages, home equity debt, and student loans to grow more cautiously, and auto loans and credit card debt may decline slightly. Auto sales are depressed due to tariffs and rising gas prices, but credit card debt typically declines during the first three months of the year due to tax refunds and new year’s resolutions to pay off high debt.
But the concern in my mind is that when we talk about how people manage their mortgages, we can’t ignore the $5.6 trillion in other debt, which includes credit cards, car loans, student loans, revolving mortgage debt, etc. After all, all debt eventually returns to your wallet, and other forms of consumer debt are growing at a much faster pace than mortgage balances. For example, since Q2 2023, total U.S. credit card balances have increased by 24%, and home equity line of credit (HELOC) balances have increased by 26%. (These may also work together, as credit card debtors leverage home equity to consolidate debt and reduce interest rates from, say, 20% to 7%.)
Already, this dramatic spike has led to a significant increase in delinquency rates, especially for credit cards. Currently, 12.7% of credit card balances are 90 days or more past due, the highest rate since early 2011. Only 0.92% of home loans are past due for 90 days or more, but that number has doubled since Q2 2023. This is still fairly low (even lower than just before the pandemic), indicating that homeowners are generally still able to pay their mortgages, but it raises questions about how close. Are they reaching a breaking point or will things get even better for renters?
Homeowners are generally in a better position than renters
In recent years, we’ve heard a lot about the K-shaped economy (the idea that the rich get richer and the poor get poorer). Homeowners tend to cluster at the top of the “K” because homeownership generally requires good wealth and creditworthiness. In fact, according to a 2022 Federal Reserve report, the median net worth of homeowners was $396,200, while the median net worth of renters was $10,400. Inequality has probably increased since then, in line with the broader trend of increasing economic inequality.
We refer to mortgage debt as “good debt” because it generally has significantly lower interest rates than “bad debt” (such as credit card debt) and because the debt contributes to future wealth potential in the form of equity.
While it may seem alarming that Americans have a record $18.78 trillion in debt as of the fourth quarter of 2025 report, the ratio of household debt to income is actually lower than it has been in recent years. The main reason for this is that unemployment is relatively low and wages are rising. It doesn’t feel good to have everything so expensive these days, but many Americans still have money to spend, and can spend on discretionary items as well as necessities like housing and groceries. Travel, dining out, live entertainment – all of these areas continue to grow.
Recent earnings reports from banks and credit card issuers have been positive about the consumer landscape. Yes, there has to be a tipping point somewhere, but it’s clear we’re not there yet. Despite years of rising prices and soaring gasoline prices due to the Iran war, American consumers continue to spend.
“The impressive statistics…I want to highlight is that retail luxury spending is up 18%, airline premium cabins are up 12%, and global travel bookings are at an all-time high,” American Express CEO Stephen Squeri recently told Yahoo Finance. “So it shows that they (cardholders) don’t care about gas prices.”
AmEx’s business has traditionally been skewed toward the upper class, but Main Street banks say the same thing. For example, Chase’s chief financial officer, Jeremy Burnham, said during the company’s April earnings call that consumers’ finances are “fundamentally sound.” He added: “We’ve been looking at whether there’s evidence that people are cutting back on other discretionary spending in preparation for higher gas prices. But that’s still not enough to be visible.”
We’ll see if Tuesday’s New York Fed report reveals cracks in this view, but I doubt it. Gasoline prices did not spike until late in the first quarter, so they had little impact on the period included in this report. As of the second week of May, the impact on overall spending appears to be limited at best. Consumers are feeling worse, but they are still spending. The cumulative impact may increase at some point, but it hasn’t happened yet. A relatively strong job market continues to support strong consumer spending.
Mortgage borrowing is delayed
There has been an alarming slowdown in borrowing for home equity among homeowners. However, this is not a new phenomenon. The peak of HELOC debt came 17 years ago. Since then, HELOC balances have fallen by more than a third, while Americans have amassed a near-record amount of potential equity available. In total, Americans have accumulated approximately $34 trillion in home equity, nearly four times the amount in 2009.
That K-shaped economy will happen again, where homeowners who are already near the K limit accumulate more wealth.
Although current HELOC rates are about 1.5 percentage points higher than they were in 2009, the current average of about 7% is still attractive. Of course, regulations have tightened since the housing crisis, and spending on home improvements has been weak in recent years for a variety of reasons. Notably, the project was accelerated in 2020 and 2021, when many Americans were confined to their homes due to the pandemic. Since then, more dollars have been flowing into experiences like travel. Inflation and economic uncertainty (exacerbated by tariffs and the Iran war) are also causing some homeowners to postpone projects.
Still, we continue to hear stories about homeowners being reluctant to move because they are sitting on incredibly low mortgage rates secured during the pandemic. So we should see more permanent residents taking advantage of near-record equity to finance new roofs, updated kitchens, and other renovations at reasonable interest rates. If used properly, home equity debt can fall into the category of “good debt.” That is, not to go on vacation or buy a boat, but to invest in necessary home improvements.
Improving the condition and livability of housing makes sense from a quality of life perspective. It also protects your assets and puts you in a better position to sell them at some point. Homeownership is the primary means of wealth building for millions of American households. In fact, if you’re a new buyer, purchasing a fixer-upper can be a shortcut to building valuable equity. It may require some capital or equity, but it’s well worth it. It’s also important to get creative when other factors don’t work in your favor, such as rising home prices or mortgage rates.
conclusion
You wouldn’t know it by looking at the disastrously low consumer confidence numbers, but Americans’ debt is actually in good shape overall, especially among homeowners who have been able to accumulate large amounts of wealth by taking on large amounts of debt. It is not meant to trivialize the struggles that exist on a personal level. For example, the number of foreclosures recently reached a six-year high, but that increase is coming from a low base. The predicament is not felt by all consumers, but by some of them.
As far as the broader economy is concerned, the current upward trajectory of Americans’ debt and delinquency rates appears to be manageable. Credit is flowing freely and the economy is growing, supported by increased consumer spending and borrowing. The best advice is to spend and rent wisely, starting with your home, which is probably the biggest purchase of your life.
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