Friday, October 1, 2010

Is there a Personal Consumption Bubble?

The BEA report that personal consumption in August was $41.3 billion dollars.  However, you have ask yourself what about the households  that are in default and delinquency which are not paying their mortgages.  Are they spending or saving their mortgage payments?  The foreclosure issue is also heating up again with paper mills and states and OCC wanting to suspend foreclosures.
There are currently about 7 million mortgages in delinquency, default, or foreclosure.  I know some of these might be cured, but I'm just going to keep this number.  The average new mortgage is $1,100, but I don't know what the average payment  is for the 7 million mortgages that are in the process, but again I'll just use $1,100.

Number of Households:       7,000,000
Average Mortgage Payment     $1,100
Total payments            $7,700,000,000 

So, every month there could be $7.7 billion dollars that either spent or saved that normally were paid on mortgages.  Also, some of these mortgages are in default due to unemployment, so this $7.7 billion might be a smaller number. 

Now, according to Calculated Risk the personal saving rate is now 5.8%, so these funds normally spent on mortgages could now be savings.  However, I think these payments divided between savings and consumption, but in what ratio?

If anybody has any data on average payment in the delinquency, default, or foreclosure process please let me know.

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