Congratulations to the Federal Reserve Bank of New York for confirming what every economist with a Bloomberg terminal already knew: the rich are fine. The quarterly Household Debt and Credit report landed Tuesday to a chorus of relieved nods, showing mortgage balances up $257 billion in the third quarter to a tidy $13.4 trillion, and the assembled financial press apparently decided this constituted good news.
Let’s pause on the framing. “Households are still managing to meet their monthly debts” is a low bar dressed up as an achievement. So did households in 2006. So did households in 1928. The ability to service debt is not the same as prosperity; it’s merely the absence of imminent catastrophe, which in modern financial media qualifies as a bull case.
The real star of the report is the 30-year fixed-rate mortgage, which the Fed researchers describe—without apparent irony—as an “anchor” for household finances. Anchors are wonderful things, provided you’re aboard the ship. Tens of millions of families locked in pandemic-era rates around 3%, and they will cling to those mortgages the way drowning men cling to driftwood, refusing to sell, refusing to move, refusing to participate in a labor market that might require relocation. We’ve built an entire economy of golden handcuffs and then congratulated ourselves on the craftsmanship. Meanwhile, the lock-in effect has strangled housing supply, pumped prices to absurd levels, and priced an entire generation out of the market. But yes, do tell me again about the anchor.
Then there’s the HELOC story, which the New York Fed insists is different this time. Balances rose $23 billion in the third quarter—the 18th consecutive quarterly gain and the largest since 2005. But don’t worry, researchers assure us: this borrowing stems from strength, not stress, because delinquencies are only around 1 percent. Remember what else was true in 2005? Delinquencies were low there, too. That’s rather the point of bubbles—they feel fantastic right up until the margin call. The last time Americans extracted equity from their homes at this pace, the extraction was used to fund kitchen renovations, vacations, and the collective delusion that house prices only go up. Today’s version is “home repairs and renovations, as well as personal expenses,” which is a euphemism worth savoring. Nothing says household strength like borrowing against your roof to cover “personal expenses.”
Homeowners’ equity has doubled since 2019, from roughly $18 trillion to $36 trillion. Marvelous. Except wealth concentration means the top 10 percent of households hold the lion’s share of it, so we’re celebrating a paper fortune belonging primarily to people who didn’t need the money in the first place. The Fed’s own researchers call HELOCs “a logical point for extracting that equity”—and it is logical, in the same way that spending your retirement savings on a boat is logical if you define your horizon narrowly enough. Equity extraction is consumption financed by leverage. It feels like wealth until the price discovery arrives.
The Fed’s narrative of resilience, however, has a asterisk the size of a small country. Roughly 40 percent of Americans have, per the Fed’s own research, “little to no disposable income” at month’s end after taxes and basic expenses. Nearly half the population is running on financial fumes, and the headline takeaway is that households “remain in decent financial health.” Decent for whom? Credit card distress is concentrating among lower-income borrowers precisely as one would expect, while the affluent sail along untouched. This isn’t one economy; it’s two, sharing a currency.
Bank of America’s own data—and credit where due, anonymized account data is harder to spin than survey self-reporting—shows the stress migrating up the income ladder. One in four higher-income mortgage holders now spends more than half their income on housing. Financial planners have long recommended 30 percent as the ceiling. So a quarter of the supposedly comfortable class is housing-cost-burdened to a degree that would have been considered pathological a generation ago. When the upper-middle class is house-poor, the phrase “underlying resilience” starts to sound less like analysis and more like a prayer.
Auto loans add their own flavor of gloom. Vehicle prices have inflated absurdly since 2020, monthly payments have followed, and lower-income borrowers are stretching to keep their cars—the one asset that gets them to the job that pays for the car. A debt spiral with wheels. Many are still “finding ways to budget and meet their monthly obligations,” which is journalist-speak for skipping meals and playing the due-date lottery.
And then, the designated bright spot: student loan delinquencies have moderated. Recall that when pandemic-era federal relief ended, the consensus forecast a default wave. Instead, borrowers have mostly kept paying. This is presented as resilience; a more honest reading is that it’s capitulation—people surrendering to payments they cannot escape on credentials of dubious market value, while the underlying debt stock remains one of the great policy failures of the past two decades. We didn’t fix the problem. We resumed collection on it, and that counts as the good news.
Here’s the pattern worth noticing: every indicator of “strength” in this report is either concentrated among the wealthiest decile, financed by leverage against inflated asset values, or defined downward until it becomes achievable. Household balance sheets look robust because asset prices are inflated by the very monetary conditions that crushed everyone without assets. The Fed prints, assets swell, homeowners extract, delinquencies stay low—until they don’t. The mechanism is circular, and circular arguments make comfortable headlines.
The deeper question nobody at the press conference asked: what happens to this vaunted resilience when the asset values themselves are tested? Forty trillion in real estate equity rests on prices supported by scarcity engineered through mortgage lock-in and rates that may or may not stay elevated. If prices stall—or correct—the equity cushion everyone is so cheerfully borrowing against deflates, HELOC delinquencies won’t stay at 1 percent, and the “strength, not stress” narrative will age like milk. Leverage against paper wealth is a bet that the paper holds. It always has been. The outcome, historically, has not been subtle.
So by all means, read the New York Fed’s report. But read it as what it is: a snapshot of an economy where the top decile is doing splendidly, the bottom 40 percent is one paycheck from trouble, and a growing middle slice is quietly leveraging its house to maintain a lifestyle the actual income no longer supports. Call that resilience if it helps you sleep. History suggests calling it something else—preferably before the delinquency data does it for you.
