Warning Signs

A couple of alarming news pieces came to my attention. The first is that American homeowners lost more than $1.5 trillion in home equity in the past six months. The reason for this is that most people can no longer afford mortgage payments, so the buying of homes has cooled. The monthly payment on the average home, with a 20% down payment on a mortgage, is up nearly $1,000 since the start of the year.

The second major warning sign is coupled to that- borrowing. Mortgage debt rose by $1 trillion from a year ago, to $11.7 trillion. Mortgage and home-equity debt combined are up by $2 trillion since the pandemic began. In fact, the Wall Street Journal reports that Home-equity lines of credit were up 40% in the second quarter from a year earlier. Overall, Americans are carrying a record amount of debt. It isn’t just mortgages, either: Credit-card debt also increased by the most in 20 years, with balances rising by 15% from a year earlier. The surge comes as the average interest-rates on card borrowing has climbed above 19%, the highest in data going back to the mid-1980s. Auto loan balances rose by $22 billion in the third quarter and are now above $1.5 trillion, roughly double the figure a decade ago.

With all of this debt, along with declining equity, the American economy is still rolling solely because Americans are borrowing from their future retirement. People are continuing to spend and maintain a standard of living that their income no longer can support. They are doing it by borrowing more than they can repay and doing it at sky high interest rates. Sooner or later, these debts will need to be paid. Remember- all debts are always paid by someone, if not the borrower or the lender, someone will have to pay the bills.