Long-term unemployment has created debt problems
By DANIELLE DiMARTINO / The Dallas Morning News
Credit card delinquency rates soared to record highs at the end of last year. And home equity loan delinquency rates remained near their record high.
Mark Zandi is an economist who studies debt in America. He says the travails of the long-term unemployed are showing up in these numbers.
"It's clear that lower- and middle-income households are under substantial financial stress," Mr. Zandi said. "If you become unemployed, you're staying unemployed, and if you have debt, you're going to default on that debt."
The last time it took as long as it does today to find work, he reminds us, was the Great Depression.
The good news is that we're probably seeing the worst credit card delinquency rates that we will for some time. The bad news is why: If interest rates rise, people will flock back to their credit cards to get by, because their other ATM card – a.k.a. their houses, through cash-out refinancings – will cease to generate income.
Simple percentages tell us that as more people get into credit card debt, the ratio of those in delinquency will decline – in the short term, at least.
"Credit card delinquency rates are probably at their worst levels," Mr. Zandi said. "But we're probably just getting started with mortgage delinquency rates."
That's alarming, considering mortgage delinquencies are also close to record highs.
At the core of the issue is the fact that so many people who've mortgaged their homes to the hilt have done so based on runaway home price appreciation.
On Wednesday, we learned that new-home prices have spiked more than 10 percent in the last year. And still the builders keep building: The supply of new homes is at its highest level since 1989.
When interest rates start to tick up, the backlash in home prices could get ugly. And if home prices fall, mortgage holders with variable-rate mortgages and home equity loans will quickly be in a world of pain.
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