Credit Sesame’s personal finance weekly news roundup May 28, 2022. Stories, news, politics and events impacting the personal finance sector during the last week.
- Plunging financial markets have cut U.S. household wealth
- Rising interest rates challenge buy now pay later programs
- Job market remains an economic bright spot
- Plunging sales may spell the end of home price rally
- Investment growth fueled jump in household tax payments
- Fed study finds financial well-being hit new high in 2021
- Some big card issuers are neglecting credit reporting
- Mortgage rates ease after long rise
1. Plunging Financial Markets Have Cut U.S. Household Wealth
A new report by JP Morgan Chase estimates that U.S. households have lost a total of between $5 trillion and $8 trillion in wealth so far this year. Sharp declines in financial markets are a primary reason for this loss of wealth. The S&P 500 is down about 20% so far this year. The more tech-weighted Nasdaq Composite is down about 30%. Cryptocurrencies have fared even worse, as a Bloomberg index shows cryptocurrencies have lost about half their value so far in 2022. The biggest financial damage is being felt by those who can best afford it. The JP Morgan Chase report estimates that American billionaires have lost a combined total of $800 billion. See full article at Yahoo.com.
2. Rising Interest Rates Challenge Buy Now Pay Later Programs
Buy Now Pay Later (BNPL) programs have become a popular alternative to traditional credit borrowing. A nagging question is whether the business model will be sustainable as interest rates rise. In a low interest rate environment, it did not cost BNPL companies much to extend credit to consumers in the form of extended payment periods. However, leading BNPL firm Klarna is reporting sharply-rising debt costs due to rising interest rates. This trend could squeeze the profitability of BNPL firms and/or force them to raise their fees. See full article at BNNBloomberg.
3. Job Market Remains an Economic Bright Spot
The Bureau of Labor Statistics reported that unemployment rates for April were down in 13 states and the District of Columbia. Unemployment rates were stable in the remaining states. Nationally, the 3.6% unemployment rate is a significant improvement over the 6% rate from a year ago. While a variety of economic concerns have upset the stock market in recent weeks, the employment situation continues to show the U.S. economy’s strength. The only downside is that if unemployment is too low it could add to recent inflation pressures. See full release at BLS.gov.
4. Plunging Sales May Spell the End of Home Price Rally
A U.S. Census survey found that new home sales fell by 16.6% in the month of April alone, and are down 26.9% from a year ago. The annual rate of sales in April was 591,000 units, well below expert predictions of an annual rate of 750,000 sales. The median price of a new home sold in April was nearly 20% higher than a year before. However, slowing sales suggests the rally in home prices may be collapsing under its own weight. Rising prices along with higher mortgage rates are sidelining some potential buyers. As a result, there is now a nine month supply of new homes on the market. That’s far more than the six months’ supply that is considered neutral between a buyer’s and a seller’s market. See full article CNBC.com.
5. Investment Growth Fueled Jump in Household Tax Payments
A study by he University of Pennsylvania’s Wharton School found that American households owed more than $500 billion in payments when they paid their taxes this year. Payments at tax time represent taxes that were not withheld throughout the year. The study attributes these payments to investment gains. Not only did the stock market have a strong year in 2021, but household participation in stocks has risen in recent years. The exceptional gains from 2021 may have helped fuel the economy, though with the market faltering this year that source of momentum may have disappeared. See full report at Wharton.UPenn.edu.
6. Fed Study Finds Financial Well-Being Hit New High in 2021
The Federal Reserve’s Study of Household Economics & Decision Making found households happier with their finances than at any other time in this study’s history. The Fed has been doing this annual survey since 2013. 78% of adults surveyed reported doing okay or living comfortably financially. That’s the highest percentage ever for this survey. All racial and ethnic groups showed gains in financial well-being in the 2021 survey. As another example of financial security, 68% of respondents reported having at least $400 in reserves for emergencies. That’s up from 50% when the survey began in 2013. See full report at FederalReserve.gov.
7. Some Big Card Issuers Are Neglecting Credit Reporting
The Consumer Financial Protection Bureau (CFPB) sent a letter to six of the largest credit card issuers asking why they appear to have stopped reporting consumer payments to the three major credit bureaus. Failing to report those payments may result in credit reports and credit scores being based on outdated information. This could be especially harmful to consumers who have been making regular payments recently in an effort to repair damaged credit. The CFPB’s letters were sent to J.P. Morgan Chase, Citibank, Bank of America, Capital One, Discover and American Express. See full article at PYMNTS.com.
8. Mortgage Rates Ease a Bit After Long Rise
Mortgage finance company Freddie Mac announced that 30-year fixed mortgage rates have dipped for two consecutive weeks now, after having risen by more than two percentage points since the year began. 15-year fixed mortgage rates have declined for three weeks in a row. 30-year fixed rates now average 5.10% while 15-year fixed rate mortgages average 4.31%. In contrast, adjustable rate mortgages are playing catch-up after having not risen by as much as fixed rate mortgages earlier in the year. 5/1 adjustable rate mortgages have now risen for three consecutive weeks. See full data at FreddieMac.com.