The Daily Money: More low-income households taking on debt to keep pace with inflation
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Happy Thursday and a good National Donut Day Eve to you, Daily Money readers. Jayme Deerwester back with you.
Inflation's ripple effect: High debt a risk for low-income households
As prices continue to surge ahead of people’s wages, more consumers are turning to debt to stay afloat.
In March, total consumer credit leaped by a whopping $52 billion, according to Fed data. Revolving credit, which is mostly credit card balances, rose by $31 billion, or about 3%. Non-revolving credit, which includes student and auto loan balances, increased by $21 billion.
Lower-income earners are getting hit the hardest, especially as gas prices continue climbing to record highs.
While the proportion of credit and debit card spending that went to gas purchases surged for all income groups to 7.8% in the week ended May 21, from 7.0% in April, households with incomes of less than $50,000 saw that number reach 9.4%, according to Bank of America Institute research. That meant less spending elsewhere, the researchers noted.
Last month, 61% of households earning less than $25,000 said they had some or a lot of difficulty covering their usual expenses over the prior seven days, up from 50% a year earlier, according to Equifax and the Census Bureau. Forty-three percent of those earning $25,000 to $49,000 reported similar challenges, up from 38% in the prior year.
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Buying a home? The 2022 housing market could be shifting in your favor.
There are indications that the Federal Reserve rate hikes to control inflation are beginning to influence the housing market, say experts. And they are anticipating a deceleration in the growth rate of U.S. home prices and better market conditions for those looking to buy homes.
A month or two into the rate hikes, the effects on the housing market were already showing. For instance, the share of listings with price drops reached a 2.5-year high in May, according to Redfin.
About 1 in 5 sellers, or 19% of listings, dropped their price in the four weeks ending on May 22, up from 13% a month earlier, and 9.8% a year ago. Touring activity from the first week of January through May 22 was 29 percentage points behind the same period last year.
“We're seeing more and more buyers pull back, whether that's a decline in people searching for homes, a decline in people touring homes, getting mortgage applications approved for buying a home – pretty much all of these leading indicators show a continuation of buyers reacting to the higher interest rates,” says Taylor Marr, deputy chief economist for Redfin.
🎧 Mood music 🎧
The Burgerheads' "Inflation Deflation" seems appropriate today:
"Inflation deflation, it leaves a bad taste. You're working to save it but it's going to waste. And if you think your money's worth the sweat and tears, you may find it buys nothing in two years."
LISTEN WHILE YOU WORK: You can hear just about every song quoted in the newsletter on the Daily Money Mood Music playlist on Spotify.