American spending has kept the economy going since the pandemic. They may finally be stopping. | CNN Business

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It is not so Two years of price hikes and interest rate hikes Americans have stopped opening their wallets and touching their credit cards.

There is a consumer willingness to continue paying higher prices. It kept the US economy relatively strong.But this attitude may soon change. Some experts think the combination of higher housing costs, rising credit card debt and declining savings could be the end Post-Covid splurgeMaybe like this year Holiday shopping season.

“Headwinds will force the consumer to shut down, and I think we’ll see consumers pull back spending for a quarter or two,” said Eric Lund, chief economist at the Conference Board.

Here are the pressures consumers face that could lead to a slowdown in spending.

Buying and paying for a home is costing Americans more than at any time in four decades. Thanks to strong demand and a limited supply of new homes – even though mortgage rates have more than doubled in the past year – it now takes About 41% of the monthly income of the average family According to research by Intercontinental Exchange (ICE), payments to buy a median-priced home. The last time housing payments cost that much was in 1984.

Housing costs are only part of the problem. As of Nov. 16, Freddie Mac’s 30-year fixed mortgage rate was 7.44 percent. In October 1981, a new home buyer had a mortgage rate of 18.45%, or 55% of average income. But the median home price that month was proportionately much lower than it is today — $70,399 ($231,902 in 2023 dollars), or 3.69 times the median income. Median home prices were roughly five and a half to six times median income over the past two years — $445,567, as of October. That ratio is higher than anywhere since ICE began collecting data, including during the housing bubble of the mid-2000s.

Inflation has affected spending on major purchases. The balance on non-home loans has doubled since 2003, to a total of $4.8 trillion, according to data from the New York Federal Reserve. Debt accumulated over $500 billion over the past two years — a bigger jump than any other two-year period since 2003, the first year of its existence.

Some of the debt is generated. Increasing car pricesBut credit card balances are growing the fastest of all—about 34 percent by the fall of 2021. Student loan and auto loan balances increased by 10 percent or less over the same period, although student loan debt It can start to come out Now that the payments have started.

An important caveat is that this data is not adjusted for inflation and that personal incomes have grown even after the pandemic. National average salary That’s an increase of more than $8,000 from 2020. Until 2022 according to the Social Security Administration. This is the largest two-year increase since 1982.

Maintaining high rates not only leads to more credit card debt, but many consumers are falling behind as well. Back on the payments. During the third quarter, 5.78% of credit card balances became seriously delinquent (90 days or more past due), accounting for the largest share of new serious delinquencies. Since the first quarter of 2022, the rate of new delinquent credit card debt has increased by nearly 90 percent.

Student loan debt previously saw the highest number of new delinquent balances until the federal government halted payments in March 2020 due to the Covid-19 pandemic.

A study released earlier this year by the Federal Reserve in San Francisco revealed an important clue as to why consumers are willing to pay higher prices: higher savings.

In the year Households were saving hundreds of dollars more per month in 2020 and 2021 compared to pre-pandemic trends. As SFF. One big reason those piggy banks were so full was the “refinancing boom” that occurred during a period of historically low mortgage rates. From the second quarter of 2020 to the end of 2021, 14 million mortgages were refinanced, resulting in an estimated $430 billion in equity released with lower monthly payments or cash out; New York Federation Study.

“With the lockdown and the worst of Covid-19, consumers were afraid to go out,” Lund said.

That meant money for goods and experiences was pooled in people’s piggy banks.

As the pandemic recedes, consumers are opening up to the experiences that were curtailed by Covid, Lund said. And for the past two years they have been Americans. Spending all these savingsAlthough prices and interest rates continue to rise.

During the pandemic, consumers accumulated $2.1 trillion in excess savings. In the year They have spent $1.9 trillion since June 2023, the SF Fed concluded.

“The user needs to take a little breather,” Lund said.

And that means Americans will eventually be forced to scale back their spending habits post-Covid.

“At some point this debt becomes unsustainable, and there are no more savings,” Lund said. That’s what we expect to be available to the US consumer by the end of this year and early 2024.

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