Rising Debt and Lower Home Prices Threaten the Economy
A large and growing number of American families are struggling with household debt – a dilemma that threatens the health of the U.S. economy.
A report from Moody's Economy.com says the condition of household credit will continue to weaken for the rest of this decade, with 5 million additional homeowners at significant risk of default during that time. Nearly half of the 10.5 million borrowers with subprime, alt-A or jumbo option-ARM mortgages have outstanding balances that exceed the value of their homes.
Economy.com says credit-card receivables are soaring at close to double-digit rates, as homeowners who can’t borrow against their homes are using the cards for cash.
Household credit quality is weakening in all loan types and in nearly every part of the U.S., although it is most evident in mortgages. According to the research, negative equity and a weakening job market are driving mortgage defaults this year. National house prices have fallen 16 percent from a peak in the spring of 2006, and about 9.6 million U.S. homeowners have mortgage balances that exceed the market value of their homes.
Total defaults this year could reach 3 million. That would be double last year's level, according to CreditForecast.com, a Web site that offers forecasts of consumer credit quality, based on data from credit bureau Equifax and projections from Economy.com.
Household liabilities in delinquency or default added up to $775 billion at the end of June. That's equal to 7.5 percent of all U.S. household debt, and is up from 3 percent two years ago, according to CreditForecast.com statistics.
– By Ed Coury, senior editor and Midwest bureau chief for the Wall Street Journal Radio Network, Dow Jones & Co., and a reporter for WWJ Newsradio 950
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