New data from the New York Federal Reserve shows a modest improvement in U.S. consumer credit conditions during the second quarter, with the share of loan balances overdue by at least 30 days declining slightly. However, the rate of new delinquencies on credit cards and auto loans remains elevated, while new mortgage defaults have climbed to their highest level since 2015, signaling persistent financial strain on U.S. households amid high interest rates and ongoing inflation.

The New York Fed's Quarterly Report on Household Debt and Credit revealed that the proportion of loan balances delinquent by at least 30 days fell to 4.7% in the second quarter. Joelle Scally, a policy advisor at the New York Fed, stated, "Delinquency rates for most credit products have broadly remained stable over the past two years." However, she noted that new delinquency rates for auto loans and credit cards are still elevated, and the New York Fed will continue to monitor this trend.

Student loan delinquencies improve, but mortgage defaults continue to rise

Performance varied significantly across different credit categories. In student loans, defaults and delinquencies surged after the end of a multi-year payment pause. However, the latest data shows signs of improvement. The share of new student loan delinquencies of at least 30 days fell to 7.8% in the second quarter, after having remained above 10% for a full year, indicating that the shock from the resumption of payments is gradually easing.

In contrast, credit quality in the housing market has deteriorated. The new mortgage delinquency rate rose further in the second quarter, reaching its highest level since 2015. For severe delinquencies, defined as loans that have recently entered a 90-plus-day overdue status, credit card-related metrics declined slightly, but other loan categories saw increases. Overall, while consumer credit is not experiencing a broad-based deterioration, the divergence across loan types remains pronounced.

Credit card delinquency rates remain high but are not worsening significantly

In an analysis accompanying the report, New York Fed researchers noted that while U.S. credit card delinquency rates are elevated, they have been broadly stable since 2024. Notably, the share of credit card balances in delinquency has increased, but the New York Fed believes this does not necessarily indicate a recent, severe worsening of credit card defaults. Researchers pointed out that lenders are now keeping charged-off overdue debts on their books for longer than in the past, meaning some long-standing unresolved bad debts are still counted in the delinquency balance. In other words, the rise in the stock of delinquent balances is more due to older, charged-off debts remaining in the data, rather than a sudden, severe increase in consumer repayment difficulties. The New York Fed researchers stated that this suggests the data "does not represent a fundamental deterioration in the incidence of delinquency."

Low-income households continue to face significant repayment pressure

Despite the marginal improvement in overall consumer credit data, high inflation and high interest rates continue to pressure U.S. households. The Federal Reserve held its benchmark interest rate steady in July, but with inflation still above its 2% target, a growing number of Fed officials believe further rate hikes may be necessary.

Meanwhile, consumers remain concerned about their future repayment ability. A separate New York Fed survey released last week showed that the probability of respondents expecting to miss a minimum debt payment in the next three months has increased, with the rise particularly pronounced among households earning less than $50,000 annually. While recent declines in gasoline prices from earlier this year have somewhat improved consumer confidence in the economic and inflation outlook, financial pressures remain more acute for lower-income groups.

Total U.S. household debt falls to $18.8 trillion, first quarterly decline since 2020

The report also showed that total U.S. household debt fell to $18.8 trillion in the three months ending June 30, marking the first quarterly decline since 2020. However, this drop was largely driven by technical factors and does not indicate a broad deleveraging trend by U.S. households. The New York Fed noted that changes in reporting practices by some mortgage servicers led to a temporary decline in mortgage balances, which in turn dragged down the overall household debt figure. Researchers expect mortgage balances to rebound in the next quarterly report as lenders resume reporting these accounts.

Overall, U.S. consumer credit conditions showed some positive signals in the second quarter. The overall loan delinquency rate edged down, new student loan delinquencies saw a notable decline, and new severe credit card delinquencies also improved. However, new delinquencies on auto loans and credit cards remain elevated, and the new mortgage delinquency rate has risen to its highest since 2015. With inflation still above the Fed's target, interest rates remaining high, and some officials beginning to support further rate hikes, whether U.S. households can maintain strong repayment capacity will continue to be a key indicator of consumer and economic resilience.