"Rising inflation and a weaker job market" are putting pressure on the financial stability of high-income earners, according to VantageScore.
A new report suggests that even America’s wealthiest consumers are feeling the strain of economic challenges. For the first time in months, credit delinquencies among high-income borrowers, those earning $150,000 or more annually, have more than doubled in October 2024. This trend highlights the growing financial pressures faced by this group as inflation continues to rise, and the job market remains uncertain.
VantageScore’s October 2024 CreditGauge survey, which tracks U.S. consumer credit health, shows that financial difficulties are no longer confined to lower-income groups. “This shift will likely have an impact on the retail sector as we enter the busy holiday shopping season,” said Susan Fahy, executive vice president and chief digital officer at VantageScore. “Inflation and employment challenges are beginning to take a toll on even the most financially secure Americans.”
The report also shows that, for the fourth consecutive month, overall consumer credit balances have reached new highs, with mortgages contributing significantly to this growth. Mortgage balances increased by $6,813 (+2.6%) from October 2023, reflecting the combined impact of higher interest rates and rising home prices.
The economic volatility of the past two years has brought U.S. consumer spending into sharper focus. While consumer spending has remained resilient throughout 2024 despite interest rate increases, concerns over the possibility of an economic downturn have persisted.
In light of these concerns, the Federal Reserve has been closely monitoring the labor market, adjusting its monetary policy to support economic stability. The Fed’s recent interest rate cuts, including a 25-basis-point reduction in November and a 50-basis-point cut in September, underscore its shifting focus from inflation to labor market stability.
However, October’s employment data was clouded by ongoing labor strikes and the aftermath of several natural disasters, making it difficult for analysts to predict future rate cuts. Markets now anticipate a 50% chance of a further 25-basis-point cut in December.
The Federal Reserve Bank of New York’s quarterly Survey of Consumer Expectations provided further insight into the state of mortgage lending, with the latest figures revealing a significant rise in mortgage application rejections. Mortgage refinance application rejections surged to 25.6% in October 2024, up from 15.5% the year prior. Overall mortgage application rejections climbed to 22.6%, a sharp increase from 13% in October 2023.
Among the high-income demographic, which VantageScore refers to as “white-collar consumers,” credit delinquencies in the 60-89 days past due category have risen dramatically. This increase outpaces delinquency growth for middle-income earners by 63%, and for low-income earners by 25%. The data underscores how even high-income groups are grappling with financial strain, particularly amid the ongoing challenges in white-collar employment sectors.
Despite the pressures faced by borrowers, the average VantageScore 4.0 credit score held steady at 702 for the eighth consecutive month. The survey also revealed that fewer consumers are opening new credit accounts, with the number of newly opened credit accounts declining for the second consecutive month. Additionally, credit card balances have remained largely unchanged from the previous month.
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