Housing Crisis Causes Credit Card Delinquency
As unemployment continues to hit record levels and home prices fall, more and more consumers are falling behind on their credit card payments. Credit cards debt is usually the last debt to get paid when people are in a financial crisis. People who are suffering from unemployment are forced to prioritize bills. The first bills to get paid are always the mortgage, the electricity bill, food and car payments. Unfortunately credit cards are always the last to get paid in bad times.
Credit card payments sixty days behind have risen to 3.75% in December of 2008. The last record set for customers that are 60 days delinquent was in 1998 when 60 delinquencies were at 3.73%. We have already surpassed this. Credit card charge offs have risen even higher to 7.5%. A charge off is when a bank or other creditor determines that a delinquent account is no longer collectable. The creditor then reports this to the credit agencies and will reflect negatively. A recent study by Fitch Ratings estimates that credit card charge offs could possibly reach as high as 9% by the second half of this year.
This severity of this recession has made it very difficult for some people to pay their credit card debt. Falling home prices and dried up credit sources have made it in some cases almost impossible for people to obtain money. In the past people were able to access home equity lines of credit in order to pay off debt. However, falling home prices have affected many people’s ability to secure loans. Some families are even upside down in their homes. That means that they owe more than the home is currently worth. The United States has never seen an economic downturn in which home prices have fallen as they have since The Great Depression.
The effect of the housing bubble has created a tumultuous economic environment. For many years financing was available very easily and people bought homes like never before. New “creative financing” alternatives were available to consumers that made it possible for people to pay for a nicer home than they could really afford. Interest only and ARM mortgage loans were given out to almost everyone and anyone. The buying frenzy continued and more homes were built. As ARM mortgages re adjusted many people were forced to foreclose on their homes. This in turn has created a massive over supply of houses available on the market. It is a basic simple rule of supply and demand. There is more supply than demand in the housing market at this point in time. Therefore, housing prices have plummeted, financing sources have dried up and many people have been forced into hard times.
This economic tsunami created by the mortgage industry has affected the credit card industry tremendously. The bottom line is that in order for the economy to start to get out of this recession, home prices must be stabilized. The current over supply of houses on the market has caused home values to plunge. Once the over supply is out of the housing market than prices will start to stabilize. People will be able to once again access home equity loans to pay off credit card debt and begin spending again.
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As unemployment continues to hit record levels and home prices fall, more and more consumers are falling behind on their credit card payments. Credit cards debt is usually the last debt to get paid when people are in a financial crisis. People who are suffering from unemployment are forced to prioritize bills. The first bills to get paid are always the mortgage, the electricity bill, food and car payments. Unfortunately credit cards are always the last to get paid in bad times.
Credit card payments sixty days behind have risen to 3.75% in December of 2008. The last record set for customers that are 60 days delinquent was in 1998 when 60 delinquencies were at 3.73%. We have already surpassed this. Credit card charge offs have risen even higher to 7.5%. A charge off is when a bank or other creditor determines that a delinquent account is no longer collectable. The creditor then reports this to the credit agencies and will reflect negatively. A recent study by Fitch Ratings estimates that credit card charge offs could possibly reach as high as 9% by the second half of this year.
This severity of this recession has made it very difficult for some people to pay their credit card debt. Falling home prices and dried up credit sources have made it in some cases almost impossible for people to obtain money. In the past people were able to access home equity lines of credit in order to pay off debt. However, falling home prices have affected many people’s ability to secure loans. Some families are even upside down in their homes. That means that they owe more than the home is currently worth. The United States has never seen an economic downturn in which home prices have fallen as they have since The Great Depression.
The effect of the housing bubble has created a tumultuous economic environment. For many years financing was available very easily and people bought homes like never before. New “creative financing” alternatives were available to consumers that made it possible for people to pay for a nicer home than they could really afford. Interest only and ARM mortgage loans were given out to almost everyone and anyone. The buying frenzy continued and more homes were built. As ARM mortgages re adjusted many people were forced to foreclose on their homes. This in turn has created a massive over supply of houses available on the market. It is a basic simple rule of supply and demand. There is more supply than demand in the housing market at this point in time. Therefore, housing prices have plummeted, financing sources have dried up and many people have been forced into hard times.
This economic tsunami created by the mortgage industry has affected the credit card industry tremendously. The bottom line is that in order for the economy to start to get out of this recession, home prices must be stabilized. The current over supply of houses on the market has caused home values to plunge. Once the over supply is out of the housing market than prices will start to stabilize. People will be able to once again access home equity loans to pay off credit card debt and begin spending again.
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Labels: credit card debt, credit card delinquincies, housing crisis
Credit Card / Financial news blog post by Todd Holliday at 7:01 PM 