10 August 2012

Shift in attitudes or short-term behavior change?

NBC reports that Americans "are getting a better handle on their debt" and that "mortgage delinquencies are tracking lower than this time a year ago." I don't know what "tracking lower" means, but I think it means that fewer people are behind on their mortgage payments right now than they were at this time last year.

The article doesn't explain why, but I'll suggest a reason, and it's sobering: in 2011, banks foreclosed on nearly 2 million properties. So is the reduction in mortgage delinquencies "a shift in consumers' attitudes towards debt," as an economist states for the article? Or has the market just operated really efficiently for the past 12 months?

Contrary to the NBC article, however, CNN reports that "foreclosure starts -- the earliest stage of the foreclosure process when delinquent borrowers first receive notices that they are in default -- rose" in July 2012 compared to July 2011. It likely depends on how you define foreclosure (filing or the sending of the first delinquent notice) and when you start your stopwatch.

Over at BBC, they're asking if Americans are getting off the hyper-consumption train, "[b]ecause while manufacturing is picking up and property sales and construction are both coming up off the floor, US retail spending remains distinctly shaky." And Americans have been saving more of their income than they were seven years ago: 4% now, but just 1.5% in 2005. Evidently, periodicity on BBC's question must be about 15 years: remember Your Money or Your Life (first published 1996) and Affluenza (1997)? The 1990s were supposed to be the decade of frugality, scaling back, and simple living. But once the dot-com boom brought us out of the early 1990s recession -- Gen Xer here, what a great time to finish university that was -- there was no looking back. People like stuff. When they have cash, they spend it on stuff.

I don't think there's any evidence here that people are saving money because they want to do so more than they want to buy things, or that their attitude toward debt has undergone a "shift." I think it's that Americans lost square footage when they lost their homes to foreclosure, so they can't engage in the same consumption behaviors they've been used to engage in. So I think people will be happy to start filling up their homes again when they do have the space. George Carlin explained it well years ago, way before the 1990s recession, though he did use some NSFW language:

That's all your house is: it's a place to keep your stuff while you go out and get more stuff!

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