We are reading a great deal, lately, about rising wages and our Federal Reserve continues to assure a nervous stock market that the economy is strong and the consumer is flush with post-pandemic cash.
Meanwhile, housing prices and rental rates continue to rise, unabated, even as mortgage rates are skyrocketing (30-year mortgages recently moved over 5%) and the 30-year bond has reached up over 3.25%.
So, what's going on?
Does all this housing activity indicate that at least for some people housing is still "affordable" and the market is as healthy as the Fed suggests? Are people making sensible long-term investments by buying homes at these prices or are we witnessing late cycle "panic" buying (fear of missing out)?
And how has consumer spending remained so strong in spite of spiking inflation?
Consider this chart, which shows consumer credit card debt.
As noted by market commentators on RIA;
"Wages are growing at around 5%, while inflation is nearly 9%.
As we have noted, many consumers are getting killed as real
wage growth is declining rapidly. Some consumers are using
their credit cards to fill the gap. March consumer credit just set a
new record at $52.4 billion. The old record was $37.7 billion.
The average pre: Covid level was around $15 billion per month.
Such spending is not sustainable and comes at a dear cost to
consumers as credit card borrowing rates are near 20%. While
credit-based spending may boost retail sales in the short run, it
will inhibit them in the long run."
Bob Silvestri is a Marin County resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization funded by individuals and nonprofit donors. Please consider DONATING TO THE MARIN POST AND CVP to enable us to continue to work on behalf of California residents.