Latest stimulus package is working to contain consumer stress
Released today, the December 2020 LegalShield Economic Stress Index™, a suite of leading, near real-time indicators of the economic and financial status of U.S. households and small business, saw its Housing Construction Index spike to an all-time high. Building activity is expected to remain strong in the first quarter of 2021. Concurrently, the Housing Sales Index reached an all-time high in December, indicating that demand for homes should sustain existing home sales into 2021. Those with existing resources are driving the housing expansion, while the recent stimulus package is helping to tamp down consumer stress among households whose finances have been most impacted by the pandemic.
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(Graphic: Business Wire)
"Millions of Americans who have fared well financially over the last 10 months remain eager to spend more on housing in 2021. Many are working from home for the foreseeable future, have been able to save money, and want to improve upon and expand their immediate, daily surroundings," said Jeff Bell, LegalShield CEO. "On the opposite side of the expanse are approximately 12 million renters who, at January’s end, will owe nearly $6K in back rent and utilities, reflecting the K-shaped recovery that has become evident in the U.S. economy."
Highlights from the December 2020 LegalShield Economic Stress Index™ are as follows:
The Consumer Stress Index fell (improved) 2.7 points in December to 65.9. Meanwhile, the Conference Board’s Consumer Confidence Index decreased 4.3 points to 88.6 in December, the second consecutive month of decline. The extension of key unemployment insurance programs, another round of stimulus payments, and a top-off for the Paycheck Protection Program all will help alleviate near-term financial stress. Likewise, ongoing vaccine production and distribution could boost consumer confidence. The timing and degree to which consumer behavior will return to pre-pandemic levels is hard to predict, even after vaccinations have been widely administered. Some new habits will undoubtedly stay with us, and develop into new opportunities.
The Bankruptcy Index dropped (improved) 1.8 points to 29.9 in December, after rising in each of the prior two months. Total seasonally adjusted U.S. bankruptcies declined 4.6% in December. For the calendar year 2020, total bankruptcies were down 30% from 2019 and consumer bankruptcies posted their lowest total since 1987. A consumer credit forecast by TransUnion expects that access to credit cards and personal loans will rebound in the first half of 2021 and that new auto loans will shift to lower risk consumers — both signs that lenders are more confident heading into next year. Moreover, the latest round of federal stimulus should help consumers continue to pay down debt and maintain low delinquency rates.
The Foreclosure Index edged down (improved) 0.5 points to 36.4 in December. Meanwhile, foreclosure starts held at an all-time low of 0.3% in the third quarter. While foreclosure activity has essentially paused, there are several worrying signs that should be monitored. For example, the Mortgage Bankers Association reported that in the first week of December, the proportion of mortgage borrowers seeking forbearance rose to the highest level since August, indicating rising financial stress for homeowners amid surging COVID-19 cases, lockdowns, and expiring federal assistance measures. Despite evidence that foreclosure pressures are building, the extensions of federal foreclosure protections for homeowners mean that foreclosure activity is unlikely to rise in the near term.
The Housing Construction Index increased in December from 137.9 to 141.2 in December to reach the highest level on record. Meanwhile, housing starts improved 1.2% in November and are up 12.8% from a year ago, the fourth month of double-digit annual growth since the pandemic began. Despite strong demand, it is possible that the housing construction boom could lose a bit of steam later in the year. The National Association of Home Builders warns of higher costs and delivery delays for building materials, shortage in skilled construction labor, and concerns about regulatory cost burdens.
The Housing Sales Index rose 3.1 points in December to an all-time high of 119.1. Meanwhile, existing home sales eased by 2.5% in November after rising for five consecutive months, though sales remain historically elevated. This softening is likely due in part to falling inventories, normal winter slow-down, and rising prices. The latest findings from Fannie Mae’s Home Purchase Sentiment Index found that after 3 months of optimism, fewer Americans said it was a good time to buy a house, though sentiment remains historically high. However, several positive trends that led to strong housing sales in 2020 — including low mortgage rates and pandemic-induced demand for single-family homes — are expected to continue into the new year.
The LegalShield Economic Stress Index™
The LegalShield Economic Stress Index™ is comprised of five sub-indices -- Consumer Stress, Bankruptcy, Foreclosure, Housing Construction and Sales -- constructed from the company’s proprietary data, which reflect the demand for various legal services over the past 15-plus years. Each of the five sub-indices were selected because they tend to lead an existing economic indicator that sheds light on the health of the U.S. economy (i.e., the target economic indicator). Each time a provider law firm, in all 50 states, receives a request from a customer, the request is logged as an "intake" in one of roughly 70 unique areas of law (e.g. - real estate) depending on the nature of the request. The company on average receives 80,000 intakes per month from its 1.8 million memberships, including individuals and small businesses, a statistically meaningful sample. In this way, the data provides actionable intelligence about the near-term direction of the U.S. economy. Keybridge LLC, a boutique economic and public policy consulting firm based in Washington D.C., is responsible for independently compiling and analyzing the LegalShield data and developing the accompanying economic narrative.
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Source: LegalShield v. Housing Starts (December, 2004 – December, 2020)
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