Income and credit conditions are two main factors that affect the ability of consumers to succeed in obtaining a loan—either for a home or for other personal property. It's equally important for consumers to be able to repay their current debt. Many families are having to deal with changes in income that affect their ability to obtain credit. Some have lost jobs and some have had to move in with family. Families are moving to different locations due to the various Covid outbreaks in addition to the increase in work-from-home options. The pandemic has led to challenges in the employment market from loss of jobs to less work participation. Incomes have risen over the last year, but the majority of this rise in income was due to unemployment benefits and stimulus. This post looks at the latest trends in perception of ability to obtain credit, income growth, and moving expectations from the Federal Reserve Board of New York's Survey of Consumer Expectations.
Prior to the pandemic, 50.6% of consumers reported that credit was equally easy and hard to obtain, but this share went down to 49% in March 2020. As of the December 2021 survey, 49.1% of respondents reported that they feel as though obtaining credit will be equally easy/hard. A lower share of respondents reported that obtaining credit in the year ahead will be easier, at 11.2% . A higher share of respondents, 39.8% reported that they feel obtaining credit in the year ahead will be harder. This trend shows most consumers are leaning toward it being harder to obtain credit. However, there is a segment who feel it will be easier and those consumers are likely to have good credit scores. Incomes have also increased, which could reduce the amount of debt consumers have, creating more opportunity to obtain credit.
Household Income Growth
The median expected income growth has been generally trending upwards across all income groups compared to one year ago. Those with incomes $50,000 and below expect to experience the biggest growth in income one year ahead at 3.78%. Among households with incomes of $50- $100,000, the median expected income growth is 3.3%. Among households with income of over $100,000, the median expected income growth is 3.4%.
Income Growth by Age
Looking at income growth by age, all age brackets experienced steady income growth over the last year. Among households headed by a person age 60 years and over, the median expected income growth is 2.93%. Those who are over the age of 60 are more likely to have fixed incomes and may be retired. Those incomes will not be affected by the pandemic in the same way as incomes of the younger demographic age group that are still in the job market. With sustained job growth, households headed by persons below 40 years old experienced the biggest gain in median expected income growth of 4.35%. Among households headed by persons 40 to 60 years old, the median expected income growth is 3.3%.
The pandemic has had a big impact on moving expectations. The housing market changed drastically as home sales have continued to increase over the last two years. Some consumers have chosen to move farther away due to work-from-home opportunities. Some families have taken advantage of the increased equity in their homes and have sold and moved as a result. Expectations have grown over the last year and were at their highest in October 2021. In the December 2021 survey, the mean probability that a household will move was 16.7%. This is slightly above the probability at the beginning of the year at 14.93%.
Consumers of all ages have gotten back to being able to pay their debts at pre-pandemic levels. In February of 2020, households found it more difficult to make a minimum payment on their debt. Households headed by persons under 40 years old have the most difficult time making their minimum payments, with a probability of 13.4%. Households headed by persons over 60 years old have the least difficulty making a minimum payment on their debt.
Consumers who have steady good credit and stable incomes will be able to get through the lending process when buying a home. While mortgage rates are climbing, they are still low compared to pre-pandemic levels (4% in 2019). Buying a home can be a good investment for the long term and a way to have a fixed housing payment, unlike rental payments. There is also a share of home owners who are taking advantage of being able to refinance their home and lower their monthly mortgage payments. Consumers who find themselves still working on improving their financial situation can continue to work on improving credit scores, increase savings, and building on their financial literacy.