Consumer Debt Ratios Improving

November 13 2010 (Jeff Alan)
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As one might expect in an economy like this, the credit bureau Experian is reporting that consumers are spending less on monthly obligations than they were three years ago. The company said that average monthly payments made by consumers in 25 metropolitan areas has decreased by two percent in the last three years.

Not surprising since the homeowner piggy bank called home equity has all but dried up.

The Federal Reserve also announced earlier this week that nearly $140 billion in mortgage debt had been paid off by homeowners between 2008 and the end of 2009.

The Experian study found that nationally consumers are spending $903 a month on their bills which includes things like credit card payment, auto loans (and leases), and mortgage payments.

Consumers in Washington D.C. are spending the most, at $1,285, while Pittsburgh residents are spending the least, at just $763.

“The trend we’re seeing is that consumers have lower payments, indicating both proactive deleveraging by consumers and tighter limits from lenders and certainly consumers are making fewer major purchases such as homes and cars than they were a few years ago,” said Michele Raneri, senior director of analytics for Experian. “There are many ways to manage and develop a positive credit score and good payment habits. Paying bills on time is generally the single most important contributor.”

With falling home prices and mortgage rates, for the short term we should continue to see the trend of improved debt ratios continue. When the economy recovers there will be a greater chance for consumers to afford the mortgages they apply for. The question is, how will underwriting standards at that time affect consumer’s ability to obtain those loans?

Ironically, it’s always funny how much banks and lenders loosen those standards when everybody’s working.

Tags: debt ratio, consumer, banks, lenders, mortgage debt, consumer debt, credit bureau, homeowner