Not even two years of soaring prices and mounting interest rates have stopped Americans from opening their wallets and tapping their credit cards.
The consumer’s willingness to keep paying high prices has kept the US economy relatively strong, but that attitude could soon be shifting. Some experts think the combination of high housing costs, rising credit card debt and shrinking savings could mean the end of post-Covid splurges, maybe even as soon as this year’s holiday shopping season.
“Headwinds are going to eventually force the consumer to buckle, and I think that we’re going to see consumers have to pull back on spending for a quarter or two,” said Erik Lundh, a principal economist at The Conference Board.
Here are the pressures consumers are facing that could cause a spending slowdown.
Buying and paying for a house costs Americans more now than at any point in almost four decades. Thanks to strong demand and a limited supply of new homes – even as mortgage rates have more than doubled in the past year – it now takes nearly 41% of the median household’s monthly income to afford the payments on a median-priced home, according to research from Intercontinental Exchange (ICE). The last time housing payments cost that much was in 1984.
Housing payments are only part of the problem. The Freddie Mac 30-year fixed mortgage rate as of November 16 was 7.44%. A new homebuyer in October 1981 carried an 18.45% mortgage rate, or 55% of the median income. But the median home price that month was proportionally much lower than today – $70,399 ($231,902 in 2023 dollars), or 3.69 times the median income. The median home price over the past two years has ranged from roughly five and a half to six times the median income – $445,567, as