How Many Of Us Are Hanging By A Thread?

A housing recovery can’t happen without consumers feeling more confident and spending money again. Two news stories this morning suggest that we’re still heading in the wrong direction. Most of us are financially hanging by a thread while our actually incomes are falling.

DS News reports Job Loss Could Put One in Three Out of Their Home:

One in three Americans would be unable to make their mortgage or rent payment beyond one month if they lost their job, according to the results of a national survey taken in mid-September.

Despite being more affluent, the poll found that even those with higher annual household incomes indicate they are not guaranteed to make their next housing payment if they lost their source of income.

Ten percent of survey respondents earning $100K or more a year say they would immediately miss a payment.

The survey was conducted on behalf of a financial consortium comprised of the Certified Financial Planner Board of Standards, Financial Planning Association, Foundation for Financial Planning, and the U.S. Conference of Mayors.

Sixty-one percent of those surveyed said if they were handed a pink slip, they would not be able to continue to make their mortgage or rent payment longer than five months.

The numbers are even worse when you think about it… of the 39 percent who could go longer than 5 months, I bet a number of them would rely on borrowing from family, credit cards, or from their retirement account. Very few of us actually have cash or liquid assets to last very long. Also, I wonder if the poll included any retired or semi-retired people. Lastly, it would be interesting to see a breakdown by age – you would expect people over 50 to have some cash or liquid investments. It’s probably safe to assume that 90% of those under 35 are flat broke.

Then, from Bloomberg: Falling U.S. Wages Threaten Consumer Spending

Take-home pay, adjusted for prices, fell 0.3 percent in August, the third decrease in five months, and personal income dropped for the first time in two years, the Commerce Department reported last week. The declines followed news from the Census Bureau that median household income in 2010 fell to $49,445, the lowest in more than a decade, and the poverty rate jumped to 15.1 percent, a 17-year high.

Salary and benefit growth “has been going nowhere,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “One of the key reasons the recovery has stalled is that real incomes have fallen.”

While policy makers from Federal Reserve Chairman Ben S. Bernanke to President Barack Obama focus on cutting unemployment stuck near or above 9 percent since April 2009, the widespread stagnation in wages may offer a better explanation for the failure of economic growth to accelerate two years after the end of the recession. Workers’ ability to negotiate higher earnings won’t return until the job market strengthens, and flagging confidence has raised the risk that consumers may retrench.

Inflation-adjusted weekly earnings have fallen for six consecutive months, dropping 1.8 percent in August from a year earlier, a pace not seen since the 18-month economic slump ended in June 2009.

“You are familiar with the term wage-price spiral. I don’t see any prospect of such a development in the foreseeable future, as long as unemployment remains high and longer-term inflation expectations remain well-anchored,” he said.

The worsening outlook for incomes will cause “continued pressure on home prices and on the stock market,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania. Corporate sales may be hurt as demand cools, and there may be more withdrawals from retirement plans and higher use of 401(k) loans, he said.

The Bloomberg Consumer Comfort Index slumped in the week ended Sept. 25 to the second-lowest level on record as Americans grew more concerned with their financial situation. The share of households saying it was a bad time to buy goods and services was the highest in three years.

A record 91 percent of consumers expect that growth in their incomes will match or fall behind price gains in the coming year, according to participants in the September Thomson Reuters/University of Michigan sentiment survey, which dates back to 1978.

We are making less money, but stuff is costing more, especially college tuition and health care.

Consider this: Cost of raising middle-income child in USA increases by 40% in ten years


chart rising cost How Many Of Us Are Hanging By A Thread?
According to the US Dept of Agriculture, the cost of raising a child in a middle-income family has increased by 40 percent over the past ten years. Every major category of child-rearing expense has seen steep increase: day-care, education, food, gas, medical insurance, and so on. At this rate, childrearing may become a luxury item for America’s increasingly wealthy super-rich.

To recover, housing needs young families to buy houses. But young families are generally living paycheck-to-paycheck and struggling with the rising costs of raising their kids while dealing with flat or falling salaries.

Social mood is still very dark. We need to accept that maybe we’ve painted ourselves into a corner. Saddled with high unemployment, sagging wages, student loans, and the exploding costs of having kids, we can’t realistically expect the next generation of homebuyers to buy the homes of (and bail out) the current generation of homeowners.

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About Greg Fielding

I am a longtime real estate agent who has pretty much seen it all during the housing boom as bust. With experience in selling high-end property and low-end foreclosures, raw land, short sales, development work, apartment buildings, and working with investors, I bring a well-rounded perspective to my work.I also have started to do some paid real estate consulting. If you have questions or just need some good real estate advice, book an appointment at addition to selling real estate, my insights have been featured in The New York Times, The Big Picture, and regularly on I have also done consulting work with ForeclosureRadar.Starting my career, in 2003, I have sold homes throughout Alameda and Contra Costa counties, specializing in Danville, Alamo, Blackhawk, San Ramon, Dublin, Pleasanton, Walnut Creek, Lafayette, and Orinda. I live in Danville with my three kids.

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