Going into the new year, many consumers felt optimistic that the worst of the pandemic had passed and that 2022 would be focused on promising plans to return to normalcy as much as possible. Many hoped the crazy housing market would normalize so they could purchase a new home. But it’s been anything but normal, with gloomy economic news – rising inflation, continuing supply chain problems, and other factors influencing higher costs for everything. Sadly, many households are under significant financial strain, while others are nervous as news headlines hint at a recession on the horizon. The following analysis and consumer survey, conducted by ScoreSense in March and April 2022, sought better to understand consumers’ credit score activity and their plans – on track or changed – for buying a home this year.
For perspective on the market, we analyzed credit activity for Q1 2022 compared to the same quarter last year. The results, illustrated in the graphic below, revealed the following:
As we entered 2020 during an inflation-plagued economy, credit spending, overspending and late payments all increased. Earlier this year, ScoreSense had already seen an uptick in delinquent payments being reported on the heels of increased holiday spending. In February, Federal Reserve data showed that Americans incurred more debt, as rampant inflation – which shows no signs of abatement anytime soon – kept up the pressure. The Fed reported that debt levels jumped by nearly $42 billion to almost $4.5 trillion. That’s an annual increase of 11.3%, seasonally adjusted, setting a new high. Revolving credit, which includes credit cards, jumped by 20.7% to about $1.1 trillion. We believe this will only get worse and expect that our Q2 analysis will reflect the impacts on household budgets from smaller IRS refunds, increased mortgage payments due to property tax increases, and rising costs for goods and services that show no signs of falling.
Concerns are rising about inflation, and the Fed aims to raise interest rates. Consumers now see inflation hitting 6.6% over the next year, according to the New York Fed’s survey of consumer expectations in March. By the end of April, it happened: the Commerce Department reported prices had surged 6.6% during the 12 months ending in March. That’s the highest increase in prices since 1982. All signs point to the Federal Reserve moving forward on a series of interest rate hikes to help slow the economy and fight inflation this year; the latest rate increase of half a percentage point occurred on May 4. Consumer fears could translate more strongly to what we’re seeing now – a decrease in big-ticket purchases like homes and vehicles, but deeper to include reduced purchases of durable goods such as home appliances. Fed interest rate hikes mean it will cost consumers more to borrow.
Many consumers typically use their tax refunds to reduce or pay off debt in April – but this year was different. Notably, parents and people with student loan deferments were shocked to find smaller refunds, or worse, they wrote checks to the IRS. Most parents did not receive the “big” child tax credit write-off this year, as those credits were paid out in advance during 2021, and there’s no write-off of student loan interest for people who took deferments. These dynamics only added to the strain of inflationary budgets.
Financing requirements to buy a home and costs to own it have gone up, knocking many prospective buyers out of the market and adding budget stress for some owners. Several dynamics include:
For those who cannot buy a home, high rental costs are squeezing budgets. In the 12 months through March 2022, average rent rose 17% according to research by ApartmentList.com. The average rent for a two-bedroom home in the U.S. is about $2,000, according to a recent research report from Rent.com, up by 22% on a year-over-year basis.
For those with federal student loan payments, payments have been postponed through August 2022. But when payments resume, some households will feel budget stress. For many, this is a substantial expense, especially after more than a year of forbearance.
Looking at our analysis of credit behavior in Q1 and over the past year, we’re concerned that many consumers under financial duress will continue to increasingly use credit to pay for “ordinary” things, such as groceries and fuel, and hold that debt instead of paying it off at the end of the month. Worse, we’re concerned that late payments and overdue payments that go to collections may increase as well. Lastly, credit scores always matter, but especially now with lenders tightening restrictions for whom they will loan money.
At ScoreSense, we provide credit monitoring to thousands of Americans. Our website and credit specialists offer personalized recommendations to help you better understand your credit and monitor for identity fraud.
This study was conducted for ScoreSense© using the Google Surveys online portal. Surveys were collected in March 2022 among a sample of 519 consumers in the United States aged 24+ who might consider buying a home in 2022. The margin of error for total respondents is +/-4.3% at the 95% confidence level.