American consumers are struggling to shoulder the burden of financial stress generated by the current economy, and several recent data studies find the situation is more than a little challenging.
A study published in February by PYMNTS determined that 62% of American adults are living a paycheck-to-paycheck existence, up from 60% in January. Nearly one-quarter of American adults have a side job and 17% have other types of supplemental income to help cover their expenses.
Separately, a new Quinnipiac University poll found that food costs were identified as the greatest current financial concern by 22% of respondents, followed by retirement savings (18%), health care costs (17%), mortgage or rent payments (13%), college tuition (8%), energy bills (7%), credit card or loan payments (5%) and loss of a job (4%). However, financial concerns varied among different age demographics in this poll: 18- to 34-year-olds cited mortgage or rent payments as their top worry (23%), while 35- to 49-year-olds cited food costs (24%) and those 50 and older focused on retirement savings (25%).
Efforts to save money by delaying or jettisoning planned purchases and activities have dominated American spending habits, with 27% of the Quinnipiac poll’s respondents stating they’ve put off buying a home because they could not afford that purchase at this time – in comparison, 31% said they put off buying a vehicle, 19% delayed receiving medical treatment, 13% are waiting before they have children and 11% put marriage on the proverbial back burner.
When the Quinnipiac pollsters asked how difficult it would be to pay an unexpected bill of $1,000 right away, slightly more than half of respondents (52%) said it would be either very difficult (25%) or somewhat difficult (27%), while 47% say it would be not so difficult (20%) or not difficult at all (27%). Roughly four in 10 respondents (42%) said they have less in savings compared to a year ago and 27% said they have more debt compared to a year ago.
On the housing front, a survey conducted by the Homelight marketplace for sellers found 53% of real estate agents reporting an increase in the addition of contingencies into home buying contracts during the first quarter of this year, up from 30% during the second quarter of 2022. The Wall Street Journal cited this study in a recent article with the provocative title “Fear of Layoffs Is Changing How People Buy Homes.”
In view of this situation – and coupled with an inflation rate and mortgage rates that are still weighing down on many people – will there be a decline in home buying activity due to the economic problems facing Americans? On one side is Dr. Anthony Sanders, chief economist with Artesia Economics and author of the Confounded Interest blog, who believed many people are removing themselves from home buying due to financial stress.
“I think we’re already there,” said Sanders. “And it’s not just whether can you afford to buy a home, but can you afford to pay the property taxes? We’re seeing property tax rates going up – my property tax assessment just went up and not by a trivial amount either. Can you afford the maintenance and the rising electric costs? I hate to pin this on one person, but I will – Biden’s energy policies have been disastrous and electricity charges for American households has gone up. So, when you combined the cost of actually living in a home, it’s gone way up.”
Sanders added that the tradition by the federal government to actively push for homeownership will eventually be ignored by Americans who are not willing to expose themselves to more financial hardship.
“We have our friends Freddie and Fannie and these kind of zero-down programs where you can literally save nothing and go to buy an overpriced home – I think that’s gas on the fire,” he warned. “Those are political decisions, not sound economic decisions. Right now, my son was asking me if you should go out and buy a home. I said, ‘God only knows what the Feds are going to do because all the money that Biden, Pelosi and Schumer spent is still in the market, and it is probably going to cause even more inflation.”
On the opposite side of the debate is John Stoj, founder and president of the Atlanta-based Verbatim Financial, a financial planning firm. Stoj acknowledged that “what’s going on in the economy right now affects the home buying market because that’s a very emotional market. As we know, home buying is one of the most emotional things that we do. I would like to see it be less emotional, but that’s not going to happen – people get attached to their homes, they get attached to where they want to live, and the type of house they would like to buy, etc,”
Nonetheless, Stoj believed that the economic pressures in today’s economic will not sour people away from home buying.
“I remain an optimist,” he said. “And I believe in the power of not only the American economy, but the American consumer. I think that we, as a nation, will – quote unquote – figure it out.”
Stoj recalled a family anecdote of how one of his uncles returned from World War II and opted to wait to purchase a home to avoid the rising prices that occurred in the early postwar years – a wait that extended for years and years.
“I’ll save you the moral of the story and cut to the chase – he never bought a house,” he said. “But it wasn’t because he couldn’t afford it at different times. It was because he thought he was going to time the housing market. And I don’t think that you can do that any easier than you can the stock market.”
Good point/counterpoint in this article. Though I find it an over simplification to lay the blame for high electricity costs on the Biden administration. There are far more factors at play including geo-political turmoil, China’s recent end to its’ Covid policies, the war in Ukraine, and an indisputable change in our planet’s climate that simply can no longer be ignored. People are beginning to realize that there is indeed a limit to growth.