Just One Word: Plastics
The average amount of credit card debt in households with more than one card is now more than $8,000, according to CardWeb.com. That’s 167% more than the $3,000 average for households in 1990.
The average American has 2.7 bank credit cards, 3.8 retail credit cards and 1.1 debit cards, for a total of 7.6 cards per cardholder, CardWeb.com said. About 18% of all personal consumption expenditures in the country are made on bank credit cards. Add in retail cards and debit cards and the figure rises to 24%.
The most unsettling aspect of all these credit card transactions is that many Americans don’t see their income as a spending cap. About 43% of U.S. families spend more than they earn, according to a Federal Reserve study. And on average, Americans spend $1.22 for every dollar they earn, according to Myvesta.org.
Are high debt levels threatening to dampen consumer spending, which accounts for about two-thirds of the U.S. economy? Bank One Chief Economist Anthony Chan says decidedly yes. He flatly predicts that consumers will spend less in 2004 because of the amount they are borrowing.
“Household liability as a percentage of disposable income is at its highest level ever in the United States,” Chan said. “Yes, it’s too high. Next year consumer spending will probably lag growth in real GDP by a percentage point or even more.”
To make up for the effect of the high debt burden, job growth will have to soar, he says. “We need to see employment picking up and wages picking up before we see the consumer being able to avoid the impact of the high level of consumer credit.” |
 |
The Mortgage Rush
Mortgage debt is the next major piece of the debt picture. In fact, the amount owed on mortgages dwarfs the amount owed on credit cards or other loans. The average principal amount owed on a mortgage is $69,227. Nearly 14 million homeowners, about 19% of all homeowners in the country, owe more than $100,000.
|
|
American Housing Survey 2001
|
|
|
|
National
|
|
Northeast
|
|
Midwest
|
|
South
|
|
West
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Median years left on mortgage |
|
29
|
|
29
|
|
28
|
|
29
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Median outstanding principal |
|
$69,227
|
|
$70,516
|
|
$58,966
|
|
$59,848
|
|
$102,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Median total loan as % of value |
|
56.40%
|
|
50.30%
|
|
55.60%
|
|
59.80%
|
|
57.40%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Median cash received in primary mortgage refinance |
|
$24,513
|
|
$27,839
|
|
$19,362
|
|
$21,219
|
|
$28,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of homeowners with 3+ mortgages |
|
1,008,000
|
|
220,000
|
|
265,000
|
|
301,000
|
|
222,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: U.S. Census Bureau
|
Because of historically low interest rates -- often below 6% for 30-year loans -- many homeowners have been overborrowing, says Mark Zandi, chief economist at Economy.com. “Debt loads were already onerous, and they have been borrowing very aggressively in recent years,” he says.
According to the Census Bureau’s latest American Housing Survey in 2001, about 15.4% of all occupied units had a primary mortgage that was refinanced. The most popular reason for the refinancing was a lower interest rate. But the second most popular reason was to receive cash. The median amount of cash a homeowner gained in refinancing was $24,513.
One result of all this borrowing: More than 1 million homeowners now have three or more mortgages on their property. Meantime, over 1.8 million owners have outstanding loans that equal 100% or more the value of their homes.
Among the effect of these statistics and trends: bankruptcy rates at record highs and foreclosure rates rising, Zandi notes. But unlike a recovering economy and labor market won’t help ease the burden of mortgage debt, he says. An improving job market will makes the Fed more likely to raise interest rates, and even a small rise in mortgage rates could cool housing activity and hurt prices for existing homes. |
|
|
|
|
|
