Update on Consumer Debt

Yes, the real estate bubble in farmland and urban and suburban real estate is alive and well, fueled by low interest rates and now speculation. More purchasers of real estate are opting for variable rate financing (36% nationwide) as well as debt on consumer credit and credit cards.

A 1% increase in interest rates equates to a $286/month decline in after-tax household earnings, or a 5% decline in monthly disposable income for households. Twenty-two percent of homes in the hot markets are being purchased for speculative purposes. Many potential buyers who can least afford homes are purchasing on variable rate terms to qualify. You can see an F-5 economic storm on the horizon if certain events come about.

Speaking of consumer debt, the average American has eight credit cards. Thirty-eight percent pay those cards in full each month, while 24% make only the minimum payment. The typical family has slightly more than $8,000 in credit card debt.

Concerning credit scores, only 2% of Americans know their credit score. The average credit score is 677, with the Northern and Middle Atlantic states having about a 20-point higher score than the Southern Plains and Southern states. Make sure you are part of the 2% that knows your score!

War Story
Lenders from Florida were telling me that if you purchase a condo or apartment, you must occupy it. The locals are using this to prevent too much speculation in the area. Lenders from the Southeast whose customers are receiving the tobacco buyout monies indicate many are investing in second homes and beachfront property. Have they not heard that we are moving into an active 30-year cycle for hurricanes?

My e-mail address is:sullylab@vt.edu

Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.

To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.

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