Americans borrowed more to buy cars in the second quarter than in any quarter on record, even as overall household debt edged lower for the first time since the pandemic.

The New York Fed reported Tuesday that consumers took out $211 billion in new auto loans between April and June, while also adding to credit card and home equity balances. The figure is a record in dollar terms only, not adjusted for inflation — the 2021 buying surge produced quarterly auto borrowing around $200 billion, but drove up prices along with it.

That distinction matters, because the number reflects sticker prices as much as buying appetite. The average amount financed reached $43,925 for a new vehicle and $27,070 for a used one, with the average new-car payment hitting an all-time high of $770 a month earlier this year and used-car payments averaging $531. New-vehicle prices rose 0.2% year over year in June while used car and truck prices fell 2.0%. A record borrowing quarter can mean people are buying more cars, or the same number of more expensive ones.

Auto debt is now the second-largest category of American consumer borrowing after mortgages. Auto balances rose $28 billion, or 1.7%, in the second quarter, with credit card balances up $21 billion and student loan balances slipping slightly. Outstanding auto loan debt stood at $1.685 trillion at the start of the year, about 9% of total consumer debt and roughly 57% above where it was a decade earlier.

The headline decline in total household debt is largely a technical artifact. Overall consumer debt slipped to $18.8 trillion, but the Fed tied the drop to a change in how mortgage data is reported, and expects the mortgage decline to be offset by a comparable jump in the next report. It was still the first quarterly decline in aggregate household debt since the second quarter of 2020, with balances up $4.6 trillion since the end of 2019.

One of the quarter’s clearer signals came from home equity. Home equity loan balances rose $19 billion, part of a four-year pattern Fed researchers attribute to older homeowners pulling cash out through second liens rather than refinancing a low-rate first mortgage at today’s rates. Homeowners sitting on mortgages issued years ago are, in effect, borrowing around their own loans.

On delinquency, the report pushed back against a widely cited alarm. The overall delinquency rate fell slightly to 4.7% of outstanding balances from 4.8%. Fed staff economists wrote that credit card delinquency, though elevated versus pre-pandemic levels, appears to have stabilized: the share of card debt more than 90 days past due climbed from 7.6% in late 2022 to 12.8% at the start of this year, but the pace at which households actually fall behind has been essentially unchanged for about two years, with roughly 7% of balances flowing into delinquency each quarter. The researchers attributed the rise in the stock of delinquent debt to lenders keeping charged-off accounts on their books longer rather than to worsening household finances.

The card delinquency rate itself fell to 12.92% from 13.12%, while student loan delinquency rose to 10.6% from 10.34%.

The broader picture is a consumer who keeps spending despite thinner real income. Personal consumption jumped 3.2% in the second quarter, a sharp rebound from a weak first quarter that kept overall growth from slowing further than it did — to a 1.5% annual pace from 2.1%. A Bank of America Institute analysis of July data found credit card spending excluding gas up 4.3%, even as the temporary lift from events like the World Cup faded, along with signs that spending rates across income groups are converging and the economy’s K-shaped split is easing. The institute concluded that consumer financial health looks solid, noting the share of households paying off card bills in full each month has risen with little sign of accelerated savings drawdown.

For lenders and dealers, the takeaway is that credit is still flowing at high volume with delinquency holding steady — but at loan sizes and monthly payments that leave less room if the labor market softens. The report lands in the middle of a running debate among Fed policymakers over when prices rising faster than incomes will finally show up as either weaker consumption or a jump in defaults. Two quarters in a row, it hasn’t.

JBizNews Desk | New York

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