The Chinese have a saying, “May you live in interesting times,” and these are definitely interesting times for the U.S. economy – and the average consumer.
In fact, we’re receiving a lot of mixed signals as the economy seems to be rosy, unemployment low, and businesses booming, but there’s also hesitance surrounding the real estate market, more families struggling to make ends meet, and talk of a recession clouding the horizon in late 2019 or beyond.
So, we wanted to simplify what you can expect in 2019 when it comes to credit, debt, housing and more, with our simple thumbs up or thumbs down predictions.
(By the way, thumbs down is always unfavorable to consumers, homeowners, and the general public, etc. and thumbs up is always a net positive.)
We’ve been using our credit cards a whole lot again. But the good news is that we haven’t been as reckless and risky (nor have the banks) as before the last Recession with credit card debt.
In 2018, the average American household found themselves with $2,300 in credit card debt. But that doesn’t tell the whole story, as the average debt for just those households who have credit cards is $5,700, and among those who carry balances month-to-month, it’s $9,333.
That still may not be huge reason for concern expect that our card debt is going to get significantly more expensive in 2019 and beyond. For one thing, Americans now pay $104 billion in interest and fees on credit cards every year, but that’s expected to increase by about 10% in 2019.
The average credit card APR was 15.5% in 2018, but that’s also expected to climb in 2019.
While 175 million Americans actively use their credit cards (with an average of three cards per consumer), 44% of those balances aren’t paid in full each month.
The bottom line: expect credit card minimum payments, interest, and fees, etc. to take up a larger portion of our incomes in 2019.
While credit card debt will sting in 2019, our other forms of consumer debt will start to really hurt. Increases in both the prevalence and cost in student loans, medical debt, and auto loans, in particular, have surpassed credit cards as destructive to the average person’s net worth.
The average college graduate with student loans now enters the workplace with more than $30,000 in educational loans to pay off, we’re buying new cars with huge auto loans like never before, and medical debt is the leading contributor to personal bankruptcy.
In fact, total outstanding U.S. Consumer Debt is about $3.9 trillion going into 2019, with about $1.3 trillion of that in revolving debt. In 2019, look for our total consumer debt to surpass $4 billion, and expensive auto loans, unescapable student loans, and outrageous medical debt to keep rising.
Thumbs up (yes, up! – you didn’t read that wrong!)
All of a sudden, seemingly with the flip of a switch, people are talking about the real estate market grinding to a halt. Hold on a second – as the rumors of our housing market’s demise have been greatly exaggerated.
In fact, when they surveyed 100 of the top national real estate economists, 94% of them predicted that home prices will continue to rise in 2019, albeit just a little more slowly than the hot markets of 2017 and ’18. Likewise, 4% of those economists think home prices will neutralize, and only 2% believe they will go down.
Unlike the last Recession, this economic slowdown will have little or nothing to do with the real estate and mortgage market, and most people are in rock solid, stable and safe loans – and equity positions – these days.
Demand is still extremely high, homeownership rates have a long way to climb to become normalized, and mortgage interest rates, although not at all-time valleys anymore, are still favorable if you look at historical trends.
What this might look is a healthy correction as the see-saw tilts from an extreme seller’s market to one more balanced with buyers.
That’s actually a huge thumb’s up, correcting the market so it won’t overheat and become a bubble again!
Across the U.S., rents are rising, and in many cities and metro markets, they’re climbing in a big way. Nationally, rents rose around 4% in 2018 – as the national average for a one-bedroom apartment reached almost $1,250 and $1,500 for a two-bedroom.
Of course, we know that rents are always lofty in places like California, but in 2019, you can expect a trend where rents jump most in “second cities” like Raleigh, NC, Phoenix, AZ, and our own local Sacramento, CA. We’ve seen rent increases of around 6-8% annually in the Sacramento region over the last few years, and landlords are ready to up the ante even more in 2019, with possible double-digit percentage rent increases in some areas. Homeownership is suddenly looking better!
One caveat – if you’re a landlord or own investment property, this is a big thumbs up!
Thumbs up and down
There is both reason for optimism and pessimism for credit scores in 2019.
On the one hand, in 2018, the average U.S. FICO credit score hit an all-time high of 704. That was due in part to better credit management, keeping credit card debt under control, and more. However, a considerable part of those lofty scores was the low number of defaults.
It’s true, as foreclosures, bankruptcies, short sales, credit card missed payments and defaults and more were at a 10-year low in 2018, levels not seen since the pre-Recession salad days.
However, as the economy tightens, interest rates rise, and new loans are not as readily available, expect the number of defaults to grow – although only slightly and not worthy of alarm. That will drop average credit scores a few points or flatten any increases.
If you’re looking to increase your score in 2019 to save money or buy a home, contact Blue Water Credit for help!