August 01, 2010

Moving Forward: Unfairness in Life and Lending: Credit and Low-Income Americans

Tamara Draut, Jose Garcia

MF10-1: As the economic recession continues to threaten the economic security of low- and middle-income households, its effects have been heightened by the reality that even before the downturn, millions of households were experiencing difficulties making ends meet. Between 2000 and 2006, most households experienced stagnant or declining incomes. At the same time, cost of living expenses increased by 32 percent -- leaving households with a growing gap between their incomes and basic costs. These two factors combined with low interest rates and inflated home values, helped fuel the growth of credit card debt and cash-out refinancings. During the height of the housing bubble—2001 to 2006—homeowners cashed out $1.2 trillion in home equity (2006 dollars) and households accumulated nearly $900 billion in credit card debt. As households tapped their savings and spent nearly all of their incomes, the nation’s personal saving rate dropped to 0.04 percent of disposable income in 2006— its lowest level since 1934...

Category: Working Papers

Read More About: Homeownership, Affordability