The Federal Reserve’s report states that the total consumer revolving debt plummeted by $9.4 billion in August 2020. Total debt, which primarily consists of credit card balances, sank to $985.3 billion during the month.
Based on the research data analysed and published by Stock, US credit card debt dropped from $930 billion in Q4 2019 to $890 billion in Q1 2020. In Q2 2020, it sank further down to $820 billion. It had been on an uptrend since 2014, going from $660 billion in Q1 of that year to the Q4 2019 figure.
Card balances in August 2020 dropped by 11.3%, compared to a 0.3% drop in July and a 2.0% drop in June. From an increase of 4.2% in February, the figure had dropped by 28.2% in March, 65% in April and 28.6% in May.
May 2020 saw revolving consumer debt drop below $1 trillion for the first time since May 2011, during the Great Recession. Overall, consumer debt dropped by 7.6% in Q1 and 30.8% in Q2 2020. The Q2 drop which amounted to over $70 billion was the steepest on record. According to McKinsey, credit card losses could rise to $53 billion in 2020 from $38 billion in 2019.
As credit card debt declined, mortgage balances increased by $68 billion in Q2 2020 to reach $9.78 trillion according to New York Fed’s data. Also, new mortgage originations reached $1.1 trillion during the period while refinancing increased by 200% year-over-year (YoY).
It is projected that in Q3 2020, refinancing and originations could increase by 25% or more. That would see total refinance lending and origination volume cross the $4 trillion threshold for the first time. However, delinquent mortgages in September 2020 were 6.66% compared to only 3.53% in September 2019.