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Skip the mortgage and spend more [ClearOnMoney]
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Commentary

Skip the mortgage and spend more

11 Dec 2009 by Jim Fickett.

With the jobs situation still deteriorating and consumer credit shrinking, I've been interested to see retail sales in a growing trend during 2009 (see Calculated Risk for a long term graph showing the trend). It is true that not just the direction of consumer credit but the rate matters; however a quick look at the 7 Dec 2009 Econoday graph suggests that the decline in consumer credit has been fairly steady over most of the year.

Of course sales are still well below where they were before the crisis, and the explanation may just be that there was a panicked reaction in 2008, followed by a gradual normalization. Still, I've wondered, where is the money coming from that is getting spent? Wages? Stock market?

At least partly from shedding debt burdens. On Wednesday, the Wall Street Journal reported, in an article entitled American Dream 2: Default, Then Rent:

For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month – an injection that in the long term could be worth more than the tax breaks in the Obama administration's economic-stimulus package.

This $5 billion per month suggests that delinquent mortgage payments are on the right scale to be part of the explanation. The increase in retail sales per month in the last year is about $10 billion. It would be difficult to get an accurate estimate of just how much delinquent payment amounts outstanding are increasing per month, and even more difficult to know how much of the money saved from not making mortgage payments is getting spent on retail. But the scale of the numbers suggests that part of the rebound in retail is indeed from skipped mortgage payments.