Consumer Financial Health Sees Biggest Drop Since 2008, Reversing Recent Gains, CredAbility Consumer Distress Index FindsThursday, November 17, 2011

Mortgage Delinquencies Rise, Savings and Consumer Confidence Slump; Consumers Face New Challenges As Holiday Shopping Season Begins

ATLANTA, GA – A deteriorating housing picture, increased expenses and a drop in consumer confidence led to a sharp decline in consumers’ financial health in 2011’s third quarter, reversing gains made over the past three quarters.

Mortgage delinquencies, late payments by apartment dwellers and housing expenses as a percentage of gross income all increased during the quarter. At the same time, rising prices for food and gasoline meant consumers had less discretionary income. And even though the unemployment rate remained steady, the under-employment rate increased as the number of persons working part-time for economic reasons increased by 700,000 to 9.3 million in third quarter.

These are among the key findings of the latest CredAbility Consumer Distress Index, which is published by CredAbility, one of the nation’s leading nonprofit credit counseling and education agencies. The quarterly index tracks the financial condition of the average U.S. household by measuring five categories: employment, housing, credit, how families manage household budgets and net worth. A score below 70 indicates a state of financial distress.

U.S. households scored 66.7 on the Index’s 100-point scale, a significant decline from 69.2 in the second quarter of 2011 and the largest drop since the third quarter of 2008. The drop in the third quarter index breaks a string of rising scores in five of the past six quarters. The nation’s consumers have now been in financial distress for 12 consecutive quarters.

View a short video about the index’s results at http://www.credability.org/cdivideo.

“The fragile gains made during the past one and a half years have been swept away in a single quarter,” said Mark Cole, chief operating officer of CredAbility and author of the Consumer Distress Index. “The mortgage delinquency rate is no longer improving and household budgets are being squeezed by rising gas and food costs. Unless consumers are willing to borrow, they’ll need to scale back their holiday spending.”

The index also measures the financial distress level of consumers in all 50 states and the District of Columbia. Among individual states, Nevada had the lowest score at 59.70, followed by Mississippi, Michigan, Georgia and Alabama. Only 19 states and the District of Columbia had scores higher than 70. To see a detailed explanation of how the Index works and a national map, go to www.CredAbility.org/ConsumerDistressIndex.

National highlights for the third quarter include:

• The Index’s Housing category dropped nearly six points to 63.84. Mortgage delinquency rates increased from 7.08 percent to 8.27 percent during the quarter, while delinquency rates for rental properties also rose. Housing expenses for all consumers as a percentage of gross income increased from 31.60 percent to 31.99 percent.
• In the Household Budget category, the score sank more than eight points to 66. Rising food and gasoline prices caused a drop in discretionary income and the average households’ amount of emergency savings now stands at just more than two months’ worth of funds. Consumer sentiment about the prospect of an improving economy also dropped significantly.
• The Credit category score rose more than two points to 84.95, the highest score in more than 15 years. Consumers continued to manage their credit well; delinquency rates on credit cards and other consumer loans fell, as did households’ debt as a percentage of income.

State highlights for the third quarter include:

• In the 2011 third quarter, consumers in nine states, including Texas, New Jersey and Pennsylvania, slipped back into financial distress.
• While its score dropped slightly to 65.80, California appears to be stabilizing. The nation’s most populous state now ranks as the 16th most distressed state compared to No. 10 in the second quarter. California’s mortgage delinquency rate dropped slightly during the quarter and the net worth score for the state’s consumers rose slightly from 69.18 to 69.55.
• The deteriorating picture was felt broadly across the U.S. No state score improved compared to the second quarter, largely due to mortgage delinquencies and other housing issues. Even North Dakota, the state with the highest overall score, experienced an increase in mortgage delinquencies, from 2.64 percent in the second quarter to 3.78 percent in the third quarter.
• Among the nation’s most populous states, the Northeast and Mid-Atlantic states continue to have the highest scores. Virginia, at 73.48, and Minnesota, at 73, are the most populous states in the top 10. Delaware, with a score of 68, has the worst score among states in the Northeast, but ranks as the 24th most distressed state in the nation.

2011 third quarter CredAbility Consumer Distress Index data by state:

About the CredAbility Consumer Distress Index
Published quarterly, the CredAbility Consumer Distress Index uses a proprietary methodology that draws upon multiple data sets. Employment, housing, credit, household budget and net worth information is supplemented with data collected by CredAbility, which serves more than 630,000 financially distressed individuals each year.