According to his research, from Q1 2021 to Q3 2022, the change in net worth was positive across all income percentiles, with the growth strongest among lower-income households. During this same period, assets rose at a faster pace than overall borrowing. Over the past six quarters, consumer debt rose slower than 2018/2019 which was a time of far less worry about consumer balance sheets.
Prevailing narratives – read news reports – don’t take the purchase of cars (and, to a lesser extent boats and tractors) into account, he noted. “Even with the growth in consumer credit, there’s been an equal and larger growth in consumer durable assets. The reason that’s important is that that’s mainly cars. It really means that what consumers are taking out debt today, it’s to buy something like a car. It’s not to load up the credit card,” he said of consumers. “Even as their liabilities are growing, their assets are growing at such a larger rate that their net worth is really growing.”
Is there a great recession coming in 2023?
Then there’s the granddaddy of them all – the “next Great Recession” narrative. “Instead of worrying about ‘the next 2008’, we should address a tangible concern – the housing shortage and inaccessible mortgage market,” Verkhoglyad said. “We are in the midst of a decade-long critical shortage of housing,” he noted. “We’re no longer asking if there’s a shortage but debating how many millions short we are.”
The global financial crisis, he said, “left a permanent imprint on the US financial system, creating a vacuum of financing options for a significant portion of households,” (referencing global turmoil marked by a period of extreme stress in global financial markets and banking systems between mid-2007 and early 2009). “Part of the problem was a lack of accessible and reliable data, but robust and data-driven underwriting can make a substantial difference in the mortgage market.”
In rebuking prevailing narratives, Verkhoglyad said he scoured through his firm’s internal data along with that of the Federal Reserve.