The pandemic has led to a real estate boom in the United States and a reduction in credit card debt, according to the New York Fed

FILE PHOTO: The Federal Reserve building is located against a blue sky in Washington, United States, May 1, 2020. REUTERS / Kevin Lamarque / File Photo

(Reuters) – The coronavirus pandemic has changed the way American consumers use credit, as falling interest rates have led to a boom in home buying and refinancing and virus-related closings have resulted in a decline in credit card use and an increase in debt repayment, according to a report released Wednesday by the New York Federal Reserve.

Total household debt rose $ 414 billion last year to $ 14.56 trillion at the end of December, the New York Fed found in its quarterly household debt and credit report.

“The COVID pandemic and subsequent recession ended the household borrowing dynamic that characterized the expansion since the Great Recession, which included robust growth in auto and student loans, while balances mortgages and credit cards grew more slowly, “New York Fed researchers wrote in an additional blog post published Wednesday. “As the pandemic took hold, that dynamic changed. “

Mortgage balances, which make up the largest share of household debt, increased by $ 182 billion in 2020 – the largest increase since 2007.

Home buying and refinancing took off last year after the Federal Reserve cut its key overnight interest rate to near zero to combat the economic fallout from the pandemic, leading to lower rates mortgage. A massive shift to working and learning from home has also boosted the housing market, with some families looking for properties with more living space.

Credit card balances increased $ 12 billion in the fourth quarter, but balances were still $ 108 billion lower from the previous year, the largest annual decline since the report launched in 1999.

The year-over-year decline is a sign that many credit cardholders have cut spending and used pandemic relief checks to pay off their card balances, the researchers said. This matches previous research here from the New York Fed which found that 35% of direct payments received last year were used to repay debt.

Meanwhile, auto loan balances increased $ 14 billion in the fourth quarter and student loan balances increased $ 9 billion, according to the latest New York Fed report. In total, all non-housing household debt – including credit card debt, auto loans, student loans, and other debt – rose $ 37 billion in the fourth quarter, but was still below levels pre-pandemic observed at the end of 2019.

Report by Jonnelle Marte; Editing by Paul Simao

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