Consumer Debt and the Investment Real Estate Market

Confidence in the economy has received a significant boost recently as inflation begins to drop, while the Federal Reserve is not expected to increase interest rates for the rest of 2023. As a result, consumer and business sentiments are on the rise. However, one topic looms over us: consumer debt.

Consumer and credit card debt have surged due to the escalating inflation. This resurgence has evoked memories of the 2008 Crash for many talking heads, with fears that we might be heading down a similar path. However, it's important to delve into the matter with a sense of nuance. It's also important to note that most of the predictions of doom and gloom are just sensationalism at worst and ignorance at best. 

The Headlines vs. Reality

According to the headlines, consumer debt is at an all-time high with household debt at $17 trillion while credit card debt is at $1 trillion. At first glance, it does look like we are heading towards a financial cliff. In reality, there is more to the numbers. 

When you adjust the numbers for current inflation, it's on par with what it was back in 2008. So what is different this time? The answer: income and the economy. While the debt is high, the economy is larger than it was in 2008. GDP now is 29% larger than it was back in 2008. At the same time, the number of people in the workforce is 18 million more while personal income is up by 32% compared to 2008. 

Overall; it's not so bad when you look at consumer debt as a percentage of the national GDP. It also helps to realize that Americans are spending a smaller percentage of their income to cover debt payments. 

What it Means for Investors

Like so many forces at work, there is always nuance while clickbait news sites are not always the best source of information. Even though consumer debt is at an all-time high, we are not heading into another crash like 2008. The economy is stronger while there is more personal income out on the market.

For investors, this just shows there is a strong demand in retail and industrial space. If one is already invested in these properties then you already are watching the return on your investments. Investors looking into diversifying their holdings should speak to a market expert to get started. 

The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.