CREDIT CARD DELINQUENCIES - The Next Bubble to Burst?

By
Real Estate Agent with Dean's Team - Keller Williams Realty Partners Chicago IL

Good Morning!

We have all experienced the slowing Real Estate and stalled, retrenching Mortgage Markets.  In some parts of the Chicago area, these factors have hit us hard!

But is there another shoe to drop?

The credit freeze and the turmoil over the last three weeks on Wall Street has hit many of those seeking auto loans broadside.  Small business loans - harder to come by, until the markets begin to balance.  Unsecured consumer loans - tougher to find.

But what of the thousands, perhaps millions, of Americans, faced with the need to use their credit cards more extensively in the past year - often, just to make ends meet?  Many families have had to charge the most necessary of expenses, including food, and medical care.  A few others have used those "free" credit card draw checks to pay recurring expenses - because they feel they MUST!

Here's some sobering news - credit card delinquencies may be fuel the next big financial crisis!

The Federal Reserve Bank of New York,  in a study just released last week, found while Mortgage Delinquency Rates are up in 73% of counties across the nation, rates for delinquency of Consumer Credit Cards is up just about as much. 

Over seven out of ten counties across the country (71%) report higher credit card delinquency rates compared to last year!

Review the NY Fed's Interactive Map showing Mortgage and Consumer Credit Card Delinquencies across nearly every county in the U.S. (2,838 of them).  Shannon County in North Dakota tops the list, with 11% of its Bank Card holders at least 60 days in arrears, and 17% of its mortgages at least 90 days delinquent. (This county has one of the lowest per-capita incomes in the U.S. - hence, the exaggerated numbers here).

Roughly 1,050 counties have Consumer Credit Card Delinquency Rates at two percent or higher - seven showed near-zero delinquency percentagesNear-zero Mortgage Delinquency Rates were seen in 127 U.S. Counties, while 1,100 showed plus-2% mortgage delinquencies.

The NY Fed used Trans Union LLC Trend Data for its report.  The data excludes the 10% least populous counties across the U.S., as the potentially high percentages in these sparsely-populated areas might skew the national figures.

Experts predict the rate of delinquency for mortgages and credit cards will likely continue to rise in 2009.  As the economy weakens, and default rates increase, banks are likely to tighten their credit-granting standards even more, as more jittery consumers lose their jobs, face stalled raises in income, and may have more trouble paying their monthly credit card bills.

The problem is - many over-extended consumers are in "denial" that they have a problem, and often feel they have few choices to get by.  They hope for a quick economic turnaround that no one is predicting.

See our post yesterday via BlogChicagoHomes.com for more, as well as a link to Sudeep Reddy's post today via Real Time Economics on the Online Wall Street Journal.

DEAN & DEAN'S TEAM CHICAGO

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Re-Blogged 4 times:

Re-Blogged By Re-Blogged At
  1. Missy Aaron 10/23/2008 04:28 AM
  2. Diane Bell, Hilton Head Real Estate, Bluffton 10/23/2008 02:02 PM
  3. Roland Woodworth 10/23/2008 05:51 PM
  4. Julie Staradumsky 11/04/2008 05:06 PM
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Rainmaker
31,926
Amy Zender
Bellingham, WA

Fabulous post Dean. No doubt that this subject makes people very uncomfortable because it speaks the truth to the masses. Not everyone has a mortgage they cannot pay, but almost all of us have credit cards. I remember my Uncle Bill, a railroad man, who never had a credit card in his life. He paid cash for everything, including his cars. I never understood that, but then again, my parents never talked to me about money and responsible credit. A college roommate of mine was the one who taught me all of that.

The time is definitely coming where America will have to wake up and realize that there's a high cost to keeping up with the Joneses and to what end? A cash economy is on the horizon. Now that the mortgage industry is trying to heal, let's get to the heart of the money problems: credit cards. I theorize that the reason the mortgage crisis occurred was because more and more people were living on credit. And instead of making their mortgage payments, they elected to put more on their credit cards and scrape up the minimum payment due each month, which continued to rise, the more they overextended. It became more important to buy the newest techno-gadget and up their cell phone plan, than to put a roof over their heads.

It's easy to blame the banks for qualifying people for loans they shouldn't have, and for blaming the designer banks for pushing their ARMS and variable-interest rate loans, but I think it's high time to look in the mirror and see that it's not all their fault. We as consumers share in the culpability.

I don't write this to undermine those who have legitimately had to use their credit to pay for things while out of a job. My husband got out of the military four years ago and was waiting for the airlines to start hiring. We lived off of savings, and occasionally had to use our credit card. It is understandable that people suddenly get knocked off their path for a while. I am not referring to those folks.

Again, Dean, thank you for the enlightening post. But in a country where responsibility has become a taboo concept, we need responsible folks to speak up and tell the truth. I loved how you spoke about "denial". Beautiful. Thank you for reading.

Oct 23, 2008 07:08 AM #74
Rainer
39,183
Lori Isaacson
Credit Restoration Consultants - Plantation, FL

This post has had me thinking all day. When my son arrived at College he was bombarded with offers of credit cards. Thank goodness we had taught him about the dangers of credit card abuse and how to be responsible. I can not begin to tell you how nay parents call us at Credit Restoration Consultants and are frantic about the charges their college age children have  accumulated. I read the comment from Amy who said her parents never discussed finances. I think many of us came from that generation. Let's stop the pattern. Talk to your kids!! They only leave home with the information you pass on. Do not let them make the same mistakes as this generation.

Happy Thursday!!

Lori

Oct 23, 2008 07:44 AM #75
Rainer
111,953
Kris Kombrink ~ The Kombrink Team
RE/MAX Excels - Chicago's Western Suburbs - Geneva, IL

Timely post there, Dean!  I was just listening to the radio the other day and they were talking about this.  I guess a lot of banks are dropping peoples limit on their cards and thus maxing them out.

Oct 23, 2008 08:19 AM #76
Rainmaker
92,329
Kerry Jenkins
Prime Properties - Crestline, CA

that vicious circle is almost done for us also...very very very very very little left,but then there's the student loan...

Oct 23, 2008 09:29 AM #77
Rainmaker
1,230,273
Donald Urschalitz
Lubeck Realty Group - Jupiter, FL
P.A. Realtor ABR RSPS North Palm Beach County

Gee now that they are charging over 20% for balances I hope they chock on their own greed.

Oct 23, 2008 09:54 AM #78
Rainmaker
1,607,649
Charles Stallions Real Estate Services
Charles Stallions Real Estate Services Inc - Gulf Breeze, FL
Buyers Agent 800-309-3414 Pace and Gulf Breeze,Fl.

You are so right and the bailout will probably be bigger than the banking industry. HOw's that working for by the way?

Oct 23, 2008 10:20 AM #79
Rainer
639,083
Carl Winters
Canyon Lake, TX

We were just saying the very same thing this morning. I am going to try to send this over to Ceil so she can read your blog.

Everybody get ready, I think the hammer will drop and knock our socks off.

Oct 23, 2008 01:21 PM #80
Rainmaker
325,871
Esko Kiuru
Bethesda, MD

Dean,

That is a scary proposition but it's true. Many banks are already weakened with the mortgage mess and now they are facing this new challenge. Tighten your seat belts.

Oct 23, 2008 04:03 PM #81
Rainmaker
1,142,336
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Dean, Credit card debt is a HUGE problem. Folks in this country have considered available credit as their emergency funds for a very long time. Instead of saving we just opened more credit lines. Now that the emergency is here the credit lines are no longer available because of the freeze and folks are going to be filing bankruptcies in record numbers. Anyone that thinks this financial crisis will pass in the near future is wrong.  We ain't seen nothing yet!!!!! 

Very good topic for discussion Dean. Well done.

Oct 24, 2008 12:14 AM #82
Rainmaker
290,032
LaNita Cates
REMAX of Joliet - Joliet, IL

I can't imagine another bailout with credit cards! There are so many people, who like owning a house, shouldn't get a credit card. They think it's free money and are up to their eyeballs in credit card debt.

Oct 24, 2008 04:15 AM #83
Ambassador
2,745,009
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

When we look at the mortgage foreclosures, mortgage delinquencies and now credit card delinquincies, it doesn't bode well for our industry.

First time home buyers with good credit will be harder and harder to find.

 

Oct 24, 2008 04:23 AM #84
Rainmaker
385,925
Mike & Cindy Jones
Berkshire Hathaway HomeServices Florida Network Realty - Jacksonville, FL
Real Estate - (904) 874-0422 - Jacksonville, Fl

My wife & I (both full time Realtors) decided over a year ago and even as the real estate market continued to slow, would would NOT use credit cards for anything. If we cannot pay cash for something....we do not get it.

I have friends (other Realtors) who have been relying on credit cards to pay everything from their mortgages to their light bills and I shutter to think the enormous problems they will face in the future.

In tough economic times many people will try and maintain the same standard of living they enjoyed during the good times, by using credit cards, etc. The only problem with that is...when things get better for the economy these folks will still be in big trouble.

 

Oct 28, 2008 11:13 PM #85
Rainer
71,135
Jim Fischetti
The Fischetti Group/Keller Williams - Wake Forest, NC

Great post. Super info.

 

thanks for sharing.

 

Good luck.

 

Jim

Nov 01, 2008 07:59 AM #86
Rainer
82,537
Julie Staradumsky
Keller Williams Realty - Atlantic Shore - Northfield, NJ
CREN

Hello Dean, well we all pretty much figured this would happen do to the economy.  Now the we are going to have a new president whom talked about CHANGE, lets see if the economy will really change.

Nov 04, 2008 05:06 PM #87
Rainmaker
354,521
Blatt + Cutino
Keller Williams Coastal Estates - Monterey, CA
Broker-Associate 831/206-8070*Call today*

This is all so scary and real. Thanks for the post.

Nov 14, 2008 06:19 PM #88
Rainmaker
212,529
Terrylynn Fisher
Dudum Real Estate Group - BuyStageSell.com - Walnut Creek, CA
HAFA Certified, EcoBroker, CRS, CSP Realtor, Etc.

Credit card companies are predators and stalk people encouraging and spending tremendous $$$ getting people to bite...you can't go to any store without being asked to open a credit card account.  Just say NO.  It's a self inflicted problem.  My opinion of course.

Nov 14, 2008 06:28 PM #89
Anonymous
Belinda Kporbley.

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EASY AND IMMEDIATE COMMUNICATION WITH MY CONSULTANT.

Jul 06, 2009 02:19 AM #90
Rainer
23,644
Dan Haggerty
RE/MAX RESULTS - Orlando, FL

Dean, you are so right on spot!

Dec 03, 2009 03:32 AM #91
Anonymous
Mike Marcon

I agree, great article

Jan 06, 2010 01:57 AM #92
Rainer
311,830
Michael Delaware
North Sky Realty LLC - Battle Creek, MI
REALTOR®, CRS, GRI

Credit cards are the next to go.  I think it is mainly from their recent move to punish long term clients.  For example, if you pay down your credit balance, they lower you credit available, thus allowing their company and others to charge you a higher interest rate.  The higher interest rate is based on a lower credit score created from having a higher debt to available credit ratio.  The person may have used their card routinely, and always paid their bills on time, but now they are stuck with a lower available credit line, and pay more for it. 

Feb 10, 2010 04:53 AM #93
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