By Christian E. Weller
December 14, 2006
America’s middle class is already burdened by a trifecta of economic pressures: the labor market is slowing, household debt burdens are reaching new record highs, and interest rates have been creeping higher for most of this year. Now comes a distressing new report from the Mortgage Bankers Association, which reported yesterday that delinquencies on mortgages rose sharply in the third quarter of 2006.
Delinquency and default rates on loans and personal bankruptcy rates are still at comparatively low levels—only 4.7 percent of all loans in the third quarter—but they have been rising rapidly over the course of this year. Other measures of financial distress are also pointing one way for American families—up. With all pieces of the trifecta staying in place, rising delinquency rates on mortgages may be the beginning of a trend toward more middle class financial insecurity.
The data on bankruptcy rates also show a worrisome trend over the course of 2006. Bankruptcy rates dropped precipitously in 2006 in the wake of large filings in 2005 just before the new bankruptcy law went into effect. However, from the first quarter of 2006 to the second quarter, the annualized personal bankruptcy rate, measured as bankruptcy cases relative to the U.S. population, grew from 1.2 in 1,000 to 2.0 in 1,000—an increase of 33.7 percent. The bankruptcy rate in the third quarter stood at 2.2 in 1,000, an additional increase of 9.6 percent in that quarter alone.
Middle class families are caught between low income growth, a high debt burden, and rising interest rates—and for the moment, these ingredients are here to stay. The most recent third quarter delinquency, default, and bankruptcy figures show that the dangers to middle class economic security are not theoretical concepts. They are a harsh reality for a growing share of middle class families.
Click on the title for the rest of the article.
For a discussion on what all of this means, see Mish's Delinquency Footnote #12