Economy Watch: Consumer Debt, Including Mortgage, Down

By Dees Stribling, Contributing Editor

Some optimistic news about consumers: they’ve continued to deleverage from high amounts of both mortgage loans and consumer loans. That’s according to the Federal Reserve on Friday, which reported that currently on average, consumer debt service payments—mortgage and otherwise—is now less than 10 percent of disposable income. As of the first quarter of 2015, in fact, the average stood at 9.92 percent, almost the same as in the last quarter of 2014, when it was 9.91 percent. Mortgage payments in 1Q 2015 ate up an average of 4.62 percent of disposable income, while consumer debt service took 5.3 percent. The bubble of the 2000s drove those totals way up—to over 13 percent as recently as Q1 2008. That doesn’t sound like much of a decline, but it represents many billions of dollars that consumers can now devote to other things.

Also reported on Friday: the latest inflation numbers. Inflation is a part of the economic backdrop of real estate deals, especially as something that property owners need to take into account when projecting operating expenses, and residents need to be aware of when looking for space. Or at least, inflation historically has informed those kinds of decisions. The current rate of inflation has been so low for so long that as an indicator it’s barely noticed anymore. Owners do of course notice when the price of certain commodities go up (or down), especially energy. But the mindset that used to think, “How will we keep up with inflation?” is as much of a relic of earlier times as an 8-track tape.

Still, inflation is worth keeping track of because even slow inflation adds up over the years. For example, $1 in 1985—within the professional lifetimes of many people still in the real estate industry—had the buying power of about $2.20 now. According to the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers increased 0.4 percent in May. The reason prices moved up as much as they did in May was because of gasoline, which is now more expensive than a month ago (but still not nearly as expensive as a year ago).

The price of gas increased sharply in May, rising 10.4 percent. Other energy indexes were mixed, with the fuel oil rising but electricity declining and natural gas unchanged. The cost of food was unchanged for the second month in a row, as a decline in the cost of food at home was offset by an increase in cost of food away from home. Take food and energy out of the inflation calculation, and prices were only up 0.1 percent in May, the smallest increase since December. These costs were up: shelter, airline fares and medical care, as were personal care, recreation, new vehicles, alcoholic beverages and tobacco. On the other hand, these things cost less in May: apparel, household furnishings and used cars and trucks. Compared with this time last year, the all items index didn’t move at all.