Is a recession imminent and will it drive more homeowners to consider a reverse mortgage? Before we tackle that topic first let’s examine some recent economic history. Over the duration of the pandemic Americans socked away a considerable amount of savings. However, that savings will likely be gone by the end of this year according to research from the Federal Reserve Bank of San Francisco.
Americans’ personal savings rate as measured by the percentage of one’s disposable income saved was 9.1% in January of 2020. By April 2020 that number soared to 33.8% thanks to stimulus payments, mortgage and rent forbearance programs, and generous unemployment benefit payouts. By November 2020 the index fell to 13.3% until it rebounded to 26.3% in March 2021 thanks to a third round of stimulus payouts from the American Rescue Plan Act. The aggregate amount of dollars saved follows a nearly identical track.
A Recession postponed
Fortune-com reports excess savings accumulated during the pandemic helped defy the expectations of a looming recession as consumer spending bolstered the economy. However, with nearly 90% of the savings having been spent and credit card balances soaring consumers are ill-prepared for an economic downturn. That’s especially true for Older Americans on a fixed income who no longer can finance their expenditures on their credit cards. What’s not reported is the hedge older homeowners have; an estimated $12.7 trillion in home equity ‘savings’ held by those 62 and older.
Credit card debt hits new high
Credit card delinquencies typically surge during a recession. For example, in the years leading up to and during the housing and economic crisis of 2008 credit card delinquencies shot up from 3.54% to 6.77% in the second quarter of 2009. The number of Americans defaulting on their credit cards fell steeply as consumer spending slowed and the economy clawed its way out of the recession. Yet as consumers spent the last of their stimulus savings credit card balances and delinquencies are trending in the wrong direction.
3 comments
This is a repeat of the economic cycle we had in the 70’s recession ,stag flatiron and stock market downturns.
Ed- I think you may be correct unfortuately.
https://hecmworld.com/reverse-mortgage-news/stagflation-recession-retirement-home-equity/
We saw it in the 70s (as stated above), when the Prime Rate hit 22% then exploded in the 80s. We say it again in 2008. In each case, the bottom fishers (FHA/DPA) did well. I think the Reverse is prime for a wild ride! Yippee-ki-yo-ki-yay!