I must be honest, I really thought with the low rates, all the spending, and all the debt we were taking out that this was going to be a problem by now coming out of the pandemic. Of course, things can always change for the worse or better as we move along. Mortgage, credit cards, cars, rent, HELOC, student, and other payments are BIG burdens on the average person in the US. After researching data, I was shocked and discovered that the media painted a much different picture of doom and gloom.
So, let’s dive into some data and charts to find out what is really going on out there and compare it to the last time we had a financing crisis in 2008. Why 2008? Because that is the most recent event, and everyone seems to use that as a point of reference or pain.
$17 TRILLION in debt, how could things NOT be worse? Lots of that debt is locked in on low fixed rates, $12T + is mortgage debt, remember that 92% of that debt has a 5% or less rate and 42% has a 4% or less. So the rest is CC, student loans, HELOC, and others. The burden of debt matters with income, incomes have gone up and it went up faster than household debt.
So, all the Doom and Gloom headlines about the consumer being choked by their debt could be real. It could become an issue BUT for now, the DATA shows that we are in a much better position than before the 2008 financial crisis. Yes, there is more debt, and it was cheaper to borrow than ever but the bigger reason is that population has grown since 2008. Look at all the charts below to see what is going on with households when it comes to debt, credit cards, BKs, and others. Saving rates are coming down and I do believe the consumer is slowing down spending since coming out of the pandemic. We will see more of a normal spending pattern and consumers will start to be smarter with their financing.
It will be interesting to see where ALL these charts are a year from now and if things change. Inflation is coming down, there is pain for some out there and others are doing just fine. Time always tells where we are headed and DATA does not lie. My 2 cents are that the consumer will pull back to more normal spending, mortgage rates will come down over time, the cost of goods to come down over time and we are going to have to deal with certain industries or household goods that have gone way up that are affecting us all, like insurance, gas, food, and others. Almost 157MM people have jobs, they have income coming in and with metrics like that they feel good, and they will continue to consume at some level. Recession could change this of course or some other outlining issues could POP up. The data shows that we are in better shape than in 2008, which is a good thing, and let’s hope this holds and we can get through this period without a crisis.
