Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Saturday, May 13, 2006

Middle Class Drowning in Debt

(Thank you MoonValley for finding this article)

"America’s middle class is drowning in debt. A typical middle income family earning around $45,000 a year saw its debt burden grow by 33.1% between 2001 and 2004, even after adjusting for inflation."

"Debt relative to income rose even more, to 33.9%, during this period for middle income families. Personal bankruptcies among these households are rising steeply."

"The reasons for greater economic distress among middle class households are not hard to pinpoint. Slow income growth between 2001 and 2004, the last year for which complete data is available, has not kept pace with the rising cost of big ticket items such as housing and education loans, medical expenses and transportation. Family budgets have been squeezed."

"A common but misplaced assumption is that the growth in debt among middle-income families — those with incomes roughly between $25,000 to $70,000 a year — is the result of over-consumption through increased credit card debt. Rather, growth in debt is primarily due to heavier borrowing for investments in homes or education, both of which saw dramatic price increases in recent years."

"Debt has expanded by 30.3 percentage points to 108.4% of income — the first time since the Federal Reserve started conducting this survey that debt exceeded income."

"Despite low interest rates, debt payments surged to new highs. In 2004, the typical family spent more than 18% of its income on debt payments — the largest share since the Federal Reserve started collecting these data."

"The share of heavily indebted households continues to rise. The share of households with debt payments greater than 40% of income rose from 12.8% in 2001 to 13.7% in 2004."

"The data illustrate a more pronounced story about the economic situation of America’s middle class. In 2004, for example, the typical middle-income family dedicated the second largest share of income for debt payments (20%) relative to other income groups."

"And among middle income families, the share of families with debt payments greater than 40% of income rose the fastest among all income groups (3.2 percentage points from 2001 to 2004)."

"This growth in debt has been fuelled largely by loans for housing and education at a time of weak income growth. Households were caught in a bind that could lead them to take on more debt than in the past."

Read the full report (PDF Warning)


At 5/13/2006 01:53:00 PM , Anonymous tom stone said...

ihelpd string a garden fence this morning at my daughters preschool this morning with two other dad's,one of the other dad's told me all about his world option arm,and how wonderful it was to have the extra money every month to spend or invest... after i told him i was a loan broker...when i offered to go over his loan terms with him,so he could understand the risks as well as the benefits he got offended.after he left,the other dad and i talked aboutthe people we knew who were in trouble with their debt(quite a few) god it was nice to talk to someone who isn't stupid and arrogant.

At 5/13/2006 01:58:00 PM , Blogger Athena said...

I need to start hanging out with you and MV.

At 5/13/2006 03:11:00 PM , Anonymous tom stone said...

i would be very happy to buy you and mv a cup of coffee...i can even share my recipe for a tuna fish marshmallow casserole with a raspberry caper sauce,truly unforgettable.

At 5/13/2006 04:31:00 PM , Blogger moonvalley said...

I think it would be a great idea. Tom, your tuna recipe sounds like the perfect thing to serve at RE open houses.
Seriously we should have a sit down one of these mornings.It would have to be after my deadline on the 25th though.

At 5/13/2006 11:11:00 PM , Blogger Athena said...

sounds like a plan to me! I'll bring the recipe for ummm... boulangerie bread french toast! :-)

Shall I hide the horns?

At 5/14/2006 12:43:00 PM , Blogger David said...

it is a growing problem that may reach crisis proportions soon.

Bubble Meter Blog

At 5/14/2006 04:43:00 PM , Anonymous tom stone said...

after the 25th would be fine mv,and athena, i will leave that straight line alone,i might get in let me know where and when,i will be coming from west county,and can leave elegant santa rosa by 9 am...the two of you seem acquainted so figure out what works and let me know.

At 5/15/2006 11:26:00 AM , Blogger moonvalley said...

after the 25th would be fine mv,and athena
Sounds good. My husband who is also a reader of this blog wants in on the action too. I know too many people in the Boulangerie..maybe Starbucks?? Or the BarkingDog or..whatever..Creekside?

At 5/15/2006 01:26:00 PM , Blogger Athena said...

Starbucks is great! I am in there all the time... nobody has made the connection. ;-)


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