American Consumers Newsletter
by Cheryl Russell, Editorial Director, New Strategist Press
Meet the American Homeowner
1. Hot Trends: MEET THE AMERICAN HOMEOWNER
2. Q & A: WHO IS SPENDING MORE?
3. Cool Links: HARD WORK, HEALTH CARE SPENDING, COST OF COLLEGE
4. New and Expanded Reference Tools: AMERICAN ATTITUDES, AMERICAN HEALTH, AMERICAN GENERATIONS, and AMERICAN TIME USE
To see Cheryl Russell’s Demo Memo blog, click here.
1. Hot Trends
Meet the American Homeowner
He’s over there, crouched in the corner, hoping to ride out the storm of bad news about the housing market. According to the National Association of Realtors, sales of existing single-family homes fell in July to a level not seen since the mid-1990s. New home sales were even worse. They have reached an all-time low, according to the Census Bureau, whose records date back to 1963. With home sales plummeting, few doubt that prices will follow. Moody’s Analytics predicts another 20 percent decline in home prices between now and 2012. How prepared are American homeowners to survive the storm?
Fortunately, we have the answer. Every two years, the Census Bureau fields the American Housing Survey, which probes the housing market from the point of view of American households rather than the spreadsheets of banks, builders, or real estate agents. A look at the 2009 results, released last month, reveals what the Great Recession has already done to homeowners. More important, it tells us what the Great Recession may still do to them.
According to the survey, the median value of the average owned home stood at $170,000 in 2009. This figure was down from $191,471 in 2007–an 11 percent decline (not adjusting for inflation). Some homeowners have lost much more. In particular, those who bought a new home (defined by the survey as a home built in 2005 or later) have been especially hurt by the downturn in the housing market. The median value of their home fell from $266,480 in 2007 to $220,000 in 2009–a 17 percent decline.
As home values have fallen, mortgage loans have increased as a percentage of value. In 2007, homeowners with a mortgage owed 54 percent of the value of their home. By 2009, the figure had grown to 63 percent. The owners of new homes experienced an even larger increase in their loan-to-value ratio, which climbed from 73 to 86 percent.
The percentage of homeowners who owe more than their home is worth more than doubled during the two-year period, rising from 5 to 12 percent of homeowners with mortgages. Among the owners of new homes, the percentage who owe more than their home is worth tripled between 2007 and 2009, rising from 8 to 24 percent.
But not all homeowners are alike. In fact, there are three distinct types:
On Dry Land These homeowners own their home free and clear and are safe from the flood waters of the Great Recession. Thirty-two percent of homeowners were on dry land in 2009, a figure down only slightly from the 33 percent of 2007. Half are aged 65 or older.
In the Boat These homeowners are safe for now, sitting tight while the seas swirl around them. Homeowners in this category carry a mortgage, but they have enough home equity (more than 20 percent) to shelter them from the coming downturn in home values. Forty-two percent of the nation’s homeowners were in the boat in 2009, down from 48 percent in 2007. Although this group is shrinking, it still accounts for the plurality of owners.
In the Water These homeowners have little or no equity in their home, with a loan to value ratio of 80 percent or more. Although 20 percent equity was once considered safe, in these conditions it is treading water in the storm. The number of homeowners in the water grew sharply between 2007 and 2009, rising from 13 to 21 percent of the total. One-third of this group is already under water, owing more than their home is worth.
(Note: the 2007 and 2009 American Housing Survey percentages above do not add to 100 because the mortgage status of 6 percent of homeowners is unknown.)
What will happen if housing prices drop another 20 percent, as predicted by Moody’s? Many homeowners will be thrown overboard. The share of homeowners who are in the boat will fall sharply, from 42 to just 29 percent. The percentage who are in the water will rise from 21 to 34 percent, becoming–for the first time ever– the largest share of homeowners in America.
2. Q & A
Who Is Spending Less?
No one is spending less–at least not compared with their spending 10 years ago. Although the Great Recession has pummeled home values and decimated net worth, it has yet to greatly affect household spending. We are in the midst of the worst economic downturn since the 1930s, but the average household spent 8 percent more in 2008 ($50,486) than in 1998 ($46,937, in 2008 dollars) when the economy was booming.
Over the decade, spending has climbed in every age group, with the increase ranging from a low of 2 percent among householders aged 45 to 54 to a high of 14 percent among householders aged 75 or older, after adjusting for inflation. You might have heard differently. A recent Wall Street Journal article warned that householders aged 65 to 74 had cut their spending over the past decade, but in fact householders in the age group boosted their spending by 13 percent between 1998 and 2008. To find the cut, you have to compare the spending of householders aged 55 to 64 in 1998 with that of householders aged 65 to 74 in 2008. Well, duh. Of course households reduce their spending as they retire. This is the lifestage pattern of spending–which, by the way, should be taken into account in retirement planning (but rarely is).
Before you get too hopeful about consumer spending, note that average household spending fell 2 percent between 2006 (when it reached the all-time high of $51,688) and 2008 ($50,486), after adjusting for inflation. Average household spending fell in all but one age group during those two years. The exception: householders aged 55 to 64 boosted their spending by 1 percent because more were in the labor force. In every other age group spending was down, with the biggest declines–of 4 and 5 percent–registered by householders aged 25 to 44. When 2009 spending statistics are released later this year, they may begin to show the stomach-churning drops that are being picked up by other measures of the economy.
By Cheryl Russell, editorial director, New Strategist Publications. If you have any questions or comments about the above Q & A, e-mail New Strategist email@example.com.
3. Cool Research Links
So you think you work hard
If you think it is a good idea to raise the age at which people can receive their full Social Security retirement benefit (which is already increasing to age 67 for Americans born in 1960 or later), then you probably are not a janitor, housekeeper, carpenter, or grounds maintenance worker. Those are the four most physically demanding jobs held by people aged 58 or older. This study by the Center for Economic and Policy Research, Hard Work? Patterns in Physically Demanding Labor among Older Workers, examines the demographics of workers in physically demanding jobs. A surprisingly large 8.5 million workers aged 58 or older are doing our dirty work. How many still will be able to do the heavy lifting at age 68, 69, or 70?
A decade of health care spending
Maybe this new report on health care spending trends explains why average household spending has not fallen much despite the recession. Americans are desperately clinging to their health insurance no matter the cost. In Health Care Spending, 1998, 2003, and 2008, Bureau of Labor Statistics researchers examine how out-of-pocket health care spending has grown, and how its composition has changed, over the past decade. Spending on health care as a share of average household spending grew from 6.2 to 6.7 percent of expenditures between 1998 and 2008. Health insurance as a share of out-of-pocket health care spending grew from 51.5 to 57.9 percent. Households are devoting less to medical services as out-of-pocket health insurance costs have grown.
More data on the cost of college
Everything you want to know about the cost of college and the prevalence of student loans by type of institution is in these web tables recently released by the National Center for Education Statistics. Here, for example, you can see that the average price of attendance at for-profit schools is nearly triple the cost of public two-year schools and as much as 62 percent greater than the cost of public four-year schools (see table 2.1-A). Also shown here is the stunning fact that 92 percent of students attending for-profit institutions used student loans to pay for their schooling in 2007-08 (table 3.1-A). The majority of students at for-profit schools are black, Hispanic, or another minority (table 5.2-A).
Get accurate and reliable answers to your questions about American consumers from New Strategist’s books and downloadable reference tools. Much of the data in New Strategist’s references you cannot get anywhere else–including online!
- American Attitudes: Who Thinks What about the Issues that Shape our Lives The new sixth edition of American Attitudes coaxes the results of the latest General Social Survey out of the shadows of academia and makes them readily available for researchers who want to explore Americans’ changing attitudes. Its hundreds of tables reveal what Americans think about topics ranging from gay marriage to the American Dream, how we feel about our financial status, our hopes for our children, how often we socialize and with whom, our religious beliefs, political leanings, and working conditions. Click here to see tables of contents, sample pages, and more.
- American Generations: Who They Are and How They Live The new seventh edition of American Generations is a superior resource for researchers who want to quickly and easily compare and contrast the six living generations–iGeneration, Millennial, Generation X, Baby Boom, Swing, and World War II. Today’s world is changing rapidly and people who are as little as ten years apart in age can have very different experiences growing up, making them unlike one another in significant ways. American Generations reveals their differences and similarities. Click here to see tables of contents, sample pages, and more.
- American Health: Demographics and Spending of Health Care Consumers The new third edition of American Health provides a comprehensive look at the demographics of health care consumers and the services they use, ranging from fish oil supplements to mammograms, from doctor visits to prescription medications. Click here to see tables of contents, sample pages, and more.
- American Time Use: Who Spends How Long at What If you have ever wondered while watching TV why advertisers are so intent on selling snacks or sleep aids or cleaning products–or even why they spend so much money on television advertising itself–the new second edition of American Time Use has the answers. Here you can find detailed time use data for the two most important demographic characteristics for determining how people spend their time–their age and sex. Click here to see tables of contents, sample pages, and more.