During the past year, the real estate market and the foreclosure crisis have received considerable attention. Reports about the number of bank owned properties in neighborhoods, new building permits and home sale prices are a regular part of economic news. While the real estate market has dominated the debt discussion until now, other forms of debt are no less important to our economic health and recovery.
The Federal Reserve Bank of New York tracks delinquencies on four types of debt – mortgages, bank cards, auto loans, and student loans – through June 2009. In the Greater Cincinnati area, the amount of mortgages three months delinquent or more has remained relatively stable since last year, increasing by less than one percent on average. Only one of the Cincinnati metro area’s 15 counties - Gallatin County, Kentucky- actually experienced a decrease in delinquent mortgages; the other counties saw modest increases. This suggests that the regional real estate market may be stabilizing as banks and homeowners seek to find solutions to stem the tide of foreclosures.
Equally encouraging is a slight average decrease in the amount of delinquent car loans and credit card debt in the Cincinnati area since June of last year. While the decreases are small -- less than one-half of one-percent-- at the very least they suggest that Cincinnatians are not facing increasing struggles to pay their consumer debts. However, what is not encouraging is the apparent trend in regional student loan delinquencies. As of spring, over 13 percent of student loans in this region were more than 3 months delinquent and student loan delinquencies have increased by 3.6 percent in Cincinnati.
With two exceptions, every other county in the region saw its largest increase in delinquencies in this debt category. No doubt this trend in regional student loan delinquencies is influenced by the high unemployment rate. New graduates have struggled to find jobs as we’ve moved through this recession. Employment recovery in Cincinnati is likely to be slower than the overall national economic recovery. The job search will still be challenging even after the news reports tell us that we have turned the economic corner.
The difficulties that young people are having in our region are unfortunate, yet there may be additional effects of those struggles that will ripple through our economy over time. Young people with debt are more likely to delay buying a house, which brings us back to the fragile real estate market yet again. The inability of these young individuals to find work to pay these debts may lead to an increase in credit card debt in the future. This may lead us down a path similar to recent history, if those who struggle choose to finance their lifestyles with credit cards. Alternatively, their increased educational debt burdens and lack of employment opportunities may lead to more conservative spending habits, which may slow the region’s recovery. Difficulty in finding jobs locally may lead to greater out migration of the young, educated workforce as they look for better opportunities.
So, even though there are positive signs in the real estate market, as well as with consumer debt and auto loans, the student loan delinquencies present a different picture, and they capture the struggle of many of the region’s young people in this recession. While this too will likely improve as the economy recovers, it will certainly impact the choices young people make as they move forward including whether or not to remain in the area.
Jennifer Pitzer, PhD, is a Research Associate at the Economics Center for Education & Research, College of Business, University of Cincinnati.
