Affordability is a buzzword that echoes through the economic landscape. In episode 37 of the Market Pulse podcast, Equifax Risk Advisors Dave Sojka, Jesse Hardin, Maria Urtubey, Tom O'Neill and Thomas Aliff unpacked its complexities, including rising debt and inflation to the challenges in the housing and auto markets. 

For the full discussion, listen to our podcast or continue reading for a summary. Market Pulse podcast can be found wherever you listen to podcasts.

The Affordability Conundrum

Dave Sojka set the stage by highlighting the multifaceted challenges that consumers face. The holiday season's extravagant spending has left consumers with record-breaking debt balances, surpassing $5 trillion for the first time. The lack of affordable housing, rising auto prices and higher grocery costs have driven consumers back to credit usage, presenting a complex economic scenario.

“Consumer borrowing spiked by almost $24 billion in November, more than doubling our economist expectations for a $9 billion increase and sending outstanding credit balances north of $5 trillion for the first time on record,” Sojka said.

Inflation Insights

Jesse Hardin provided insights into inflation trends. He emphasized the importance of understanding economic data nuances when interpreting inflation's impact on affordability. While overall inflation has cooled since its peak in 2022, fluctuations persist in the prices of everyday core household goods. The Consumer Price Index (CPI) report showed modest increases in food prices, but deflationary trends in various goods and services like airfares, car rentals and computers offered a glimmer of positivity.

Auto Market Challenges

Thomas Aliff addressed the challenges in the auto market, where average new auto loan payments rose to $739 per month. The increasing costs, both in terms of monthly payments and down payment averages crossing the $7,000 mark, have implications for consumers' ability to afford new homes or rental apartments. Thomas highlighted traditional underwriting factors in the auto lending space, emphasizing the importance of considering factors beyond credit scores.

He also said decreasing auto values could have some downstream impacts.

“Because as values drop, especially as terms are getting a little bit longer on these loans, amortization is going to be harder to reach and stay above water for the consumer. That's where some of the challenges could come in if vehicles values end up dropping at some point in the future,” Aliff said.

Housing Affordability Crisis

Tom O'Neill delved into the housing affordability crisis, stressing its impact on both owning and renting. With a 7.3% average 30-year mortgage rate and a median home price of $387,000 individuals face significant challenges in balancing their budgets. 

“If we assume that someone can put down the standard 20% down payment on a home purchase, they’d have a monthly mortgage payment of about $2,127 on that median priced home that I mentioned. That's over 34% of the median household income that I just put out there,” he said. “So that 34%, which doesn't even count the insurance and taxes that lenders incorporate into that ratio, basically means that the median home price is well outside the affordability of the median household's income right now.”

The crisis extends to the rental market, where a quarter of Americans are paying more than 30% of their income on rent. The interconnectedness of housing decisions and overall spending creates a complex web of financial considerations.

Generational Perspectives

Maria Urtubey brought generational perspectives into the spotlight, highlighting shifts in financial behaviors among millennials and Gen Zers. Millennials, dubbed the "forever renters," are less eager to transition to homeownership, while Gen Zers exhibit traditional financial behaviors, focusing on essentials and saving money. 

The new year's financial resolutions across age groups emphasize paying down debt and finding additional income sources, reflecting the economic challenges individuals are navigating.

“Based on a survey conducted by Bankrate towards the end of the year, paying down debt tops the list, followed by finding a higher paying job or an additional income source and saving money for emergencies as well. Buying a home was on the list of these financial goals but towards the bottom,” she said.