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.

Categories: economics

6 Comments

Wakanda Space Station · November 16, 2022 at 3:39 pm

No price is too high to be rid of mean tweets.

exile1981 · November 16, 2022 at 4:09 pm

It will get worse, people are starting to borrow to buy groceries. I was asked 4 times by a walmart cashier if i wanted to pay for my groceries on an installment plan. I kept saying no and she kept asking.

Exile1981

    Mike · November 16, 2022 at 5:36 pm

    I’m looking at this (been watching *things* since around 1980 when I started waking up), and thinking – Lord a-mighty I’m glad everything is paid for! Still have a LOT of stuff going, but no actual debts. Gas ($3.53 for regular) today with Visa – $25 – but it gets paid off when due. Took me 50 freakin years to get to this point, and dam if these a**holes aren’t gonna try and get me financially, anyway!! Ah well, ready as I can be I guess. Financially and otherwise. We shall see.

    Like most have seen, everything that’s necessary is way up. Haven’t bought groceries in a week, I’ll let y’all know in a few days what’s going on with prices – oh yeah – c. FLA. here.

    Y’all take care,
    Mike.

    Robert · November 27, 2022 at 3:47 pm

    What is Wallyworld’s profit from that installment plan? Who the hell takes out a loan for something (i.e., food) that you probably need every single day? If you can’t afford it now, you can’t afford it tomorrow AND the loan interest.

Jonathan · November 16, 2022 at 5:13 pm

The only thing that surprises me is that it has taken this long; the market should have dropped more and started earlier.

My local realtor still claims prices are going up even as her own automated data emails show fewer and lower priced sales locally against higher and higher asking prices.

Reality hasn’t really hit yet; once it does it will be BAD. I wouldn’t be surprised if it was worse than in 2008 – and regardless of how mild it is, I expect to see more government subsidies trying to keep values up.

Don W Curton · November 17, 2022 at 8:49 am

To be fair, prior to the recent 6 month decline, home values skyrocketed for several years well above what should have been normal. With Blackrock(?) buying up entire neighborhoods as investment properties, people were making crazy money. My home almost doubled in supposed value (I get daily calls asking me if I want to sell). The only real difference for me is that the county and state now charge me more in taxes.

So, the fact that “equity” has dropped in the past 6 months is more of a correction than anything else.

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