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Barbie dolls are on display and on sale ahead of Black Friday at a Walmart Supercenter in Burbank, California on November 14, 2023.
not even Two years of soaring prices and rising interest rates Americans stopped opening their wallets and tapping their credit cards.
Consumers are willing to continue paying high prices kept the US economy relatively strong, but that attitude may soon change. Some experts believe that the combination of rising housing costs, rising credit card debt and declining savings could mean the end of the world. Splurge after COVID-19perhaps as early as this year holiday shopping season.
“The headwinds will ultimately cause consumers to crumple. They will have to hold back on spending for a quarter or two,” said Eric Lund, chief economist at the Conference Board. Ta.
Here are some pressures consumers are facing that could cause spending to slow.
It costs Americans more to buy and pay for a home now than at any point in the last nearly 40 years.Despite mortgage rates having more than doubled in the past year, thanks to strong demand and limited supply of new homes, there are now Almost 41% of median household monthly income A study by Intercontinental Exchange (ICE) found that people can afford to pay for a median-priced home. The last time it cost this much to pay for a house was in 1984.
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Housing payments are only part of the problem. As of Nov. 16, Freddie Mac’s 30-year fixed mortgage rate was 7.44%. A new homebuyer in October 1981 had a mortgage rate of 18.45%, or 55% of median income. But the median home price that month was much lower than it is now: $70,399 ($231,902 in 2023 dollars), or 3.69 times the median income. Median home prices over the past two years have ranged from roughly 5.5 to 6 times the median income of $445,567 as of October. This rate is higher than at any time since ICE began collecting data, including during the housing bubble in the mid-2000s.
Inflation has also affected spending on major purchases. Non-mortgage loan balances have more than doubled since 2003, totaling about $4.8 trillion, according to New York Fed data. Over the past two years alone, he has accumulated more than $500 billion of that debt. This is a bigger increase than any of his two years since 2003, his earliest year.
Some of that debt Soaring car pricesBut credit card balances are growing the fastest, increasing by about 34% since fall 2021. Student loan debt has increased, while student loan and auto loan balances have increased by less than 10% over the same period. I might start climbing Payments have now resumed.
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One important caveat is that this data is not adjusted for inflation, and personal income has also increased since the pandemic.National average wage Up more than $8,000 from 2020 Until 2022, according to the Social Security Administration. This is the largest increase in two years since 1982.
Keeping prices high not only increases credit card debt but also pushes more consumers into bankruptcy. payment is late. In the third quarter, 5.78% of credit card balances were in critical delinquency (payments 90 days or more late), making up the largest percentage of new critical delinquencies. Since the first quarter of 2022, new serious delinquency rates for credit card debt have increased by approximately 90%.
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Until the federal government suspended payments in March 2020 due to the coronavirus pandemic, student loan debt had historically had the highest rate of new seriously delinquent balances.
A study released earlier this year by the San Francisco Federal Reserve revealed one important clue as to why consumers continue to be willing to pay higher prices. That is a high level of excess savings.
Compared to pre-pandemic trends, households saved hundreds of billions of dollars more per month in 2020 and 2021. According to the SF Fed. One of the big reasons these piggy banks were so full was the “refinance boom” that occurred at a time when mortgage rates were historically low. According to the report, 14 million mortgages were refinanced from the second quarter of 2020 to the end of 2021, resulting in an estimated $430 billion in capital extracted through monthly payment reductions or cash-outs. New York Fed survey.
“During the worst of the lockdown and COVID-19, consumers were afraid to go out,” Lund said.
That means all the money that would have been spent on products and experiences ends up pooled in people’s piggy banks instead.
Lund said as the pandemic subsided, consumers released pent-up demand for experiences denied by the coronavirus.And for the past two years, Americans spend all your savingsEven as prices and interest rates continue to rise.
During the pandemic, consumers accumulated $2.1 trillion in excess savings. As of June 2023, $1.9 trillion of that money has been spent, the SF Fed concluded.
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“Consumers are going to need to take a moment to breathe,” Lund said.
And that could mean Americans may finally be forced to stop spending money post-COVID-19.
“At some point, this debt becomes unsustainable and your savings are gone,” Lund says. “And that’s what we expect to see happen to U.S. consumers probably late this year and early 2024.”
