Courtesy of DECON First
The negative impact of the 2007-2009 financial crisis on personal finances in Delaware has not faded. Many households carry high level of debt and prospects for improvement are not so clear, at least in the near- medium-term.
In this Economic Alert, we will analyze the evolution of some of the most important individuals’ financial commitments: Mortgage loans, junior mortgage loans, home equity loans, and credit card loans and the possibility of improvement on those markets.
Mortgage Loans
At the end of 2013, the percentage of homes with a mortgage that is underwater (value of the property lower than the outstanding value of the loan) was 23.5% and the percentage of mortgage delinquency (mortgage payments 90+ days late) was 10.2%. Among surrounding states, only Maryland has a higher percentage of houses underwater at 25.6%, Pennsylvania and New Jersey have lower percentages.
Only New Jersey has a higher percentage of delinquency than Delaware at 17.2%. However, a large proportion of the delinquent properties under delinquency are near the shore and on other areas affected by Hurricane Sandy.
Meanwhile, for the nation at large, those percentages were 19.4% underwater and 7.9% delinquency. Clearly, Delaware homeowners with outstanding mortgages are doing worse that the average for the nation.
Breaking mortgages into first position mortgage loans and junior mortgage loans (secondary mortgages) shows the burden of debt on individuals and households. It is clear that while the non-accrual portion of the primary mortgage loans are hovering at 49%, the non-accrual of the junior mortgage loans remains north of 75%.
That portion is a key factor as 76.4% of the non- performing junior (secondary) mortgage loans are not generating any interest for the lender and run the risk of going into default. Consequently, Delawareans within this range of non-accrual debt could be facing default if their individual or household income conditions do not improve or if house prices do not recover soon.
HELOCs
Another important component of the individuals’ debt portfolio is the revolving Home Equity Line of Credit. HELOCs have been used by homeowners to extract equity and direct it to fund consumption. In this market, the situation is similar to the junior mortgage loans as the non-accrual portion is still higher than 80% of the total non-performing.
As with Junior Mortgage Loans, that portion is at high risk of going into default. Credit Cards Credit card loans are the best performing part of the personal and household finances. Despite some increase during the last quarter of 2013 in 30-89 days and 90+days late, the non-accrual portion has been decreasing constantly since the last quarter of 2012.
Even with the increase in payment delays, this market is reducing the risk of borrowers’ default , leaving one “healthy” short-term borrowing market completely open. So far we have been looking at the performance of the personal/household debt markets.
The question is what is in the pipeline for those financing markets: improvement or further deterioration. Personal income in Delaware has flattened out an is on a downward trend. Personal Income shows a decreasing trend that began in late 2011.
Expectations for wages and salaries are for subpar increases during 2014. Summary Personal finances in Delaware are not booming. On the contrary, they seem to be deteriorating in some submarkets of personal financing like HELOCs and Junior Mortgage Loans.
In the overall mortgage market, Delaware is doing worse than the surrounding States and subpar to the Nation. Moreover, personal and house income that could provide a way to improve overall personal finances hence increase individuals’ borrowing looks like heading into a downturn.
Consequently, absent a major change in the economic environment, which is not likely at this moment, personal and household spending will remain flat, limiting the possibilities of improvement in retail and personal services activities. – Omar J. Borla, Economist
DECON First uses economics to strengthen Delaware business. This is accomplished by providing accurate, objective, and relevant analysis of the economy, coupled with best practice recommendations that deliver new customers. The detailed analysis for the Indicators above is found in the DECON First Quarterly Delaware Economic Review (www.deconfirst.com).
