Californians’ unpaid bills at record low

Californians have yet to show serious problems paying their bills in this challenging economy as late payments hit a record low at the end of 2022.

My trusty spreadsheet reviewed the New York Fed’s quarterly tracking of consumer borrowing habits compiled from credit history by Equifax. The stats break out 11 heavily populated states, including California, dating to 2003.

Only 1% of California household debts were 90 days or tardier in the fourth quarter. That’s a remarkable resiliency following the Federal Reserve’s interest rate hikes throughout most of 2022 designed to cool the pandemic era’s surprisingly robust economy.

So how low is California’s 1% delinquency rate?

The fourth quarter marked the best statewide payment pace on record and the lowest delinquency rate of the 11 big states tracked.

It’s significantly below the 1.61% of debts nationwide that are tardy and also the lowest since 2003. The highest delinquency among the 11 big states was found in Pennsylvania at 2.2%.

Consider California averaged 1.6% late payments in midpandemic 2020-21 and 1.9% in pre-pandemic 201819. Looking back over 21 years, 3.9% of California bills were paid late on average.

And here’s a reminder of the economic ugliness of the Great Recession: California’s 11.6% delinquency rate in 2009-10.

Details

Yes, Californians have lots of debt — $84,850 per capita at the end of 2022. That’s No. 1 among the 11 big states and 42% above the national $59,885 norm.

Still, California has few delinquent debts — $857 per capita, the thirdsmallest rate among the 11 states and 11% below the nation’s $964. The highest was in Texas at $1,172, and the lowest was in Michigan at $799.

Of course, most Californians’ debts are mortgages. Traditional home loans and home-equity borrowing ran $69,460 per capita statewide in the fourth quarter. No other big state has more housing debts, and it’s 60% above the nation’s $43,350 level.

Or look at this debt difference this way — 82% of California’s per capita borrowings are mortgages versus 72% nationally.

But so far in this wild economy, the house payment is getting to the lender on time.

Only 0.64% of California’s home-loan dollars owed were 90 days late or more in 2022’s final quarter. That’s the best payment rate of the 11 big states and roughly onethird lower than the 1.03% national rate.

Note: Texas, with a 1.31% late-pay pace, had the most tardy mortgages of the 11 big states.

Caveat

A recent borrowing

binge hints that an inflationary bout not seen in four decades is pinching household finances.

California’s per capita debts grew by 2.2% in 2022’s final three months — the fastest since 2021’s second quarter.

But it trailed the nation’s 2.9% debt growth — the biggest surge since 2007’s fourth quarter, just before the real estate bubble exploded into the Great Recession. And California’s debt bump was the smallest among the 11 big states, with Nevada’s 5.7% being the largest.

Debts have ballooned everywhere during in pandemic era. It’s a mix of borrowers in financial hurt and others taking advantage of what were once historically low interest rates.

California debts are up 17% versus 2019’s fourth quarter. Yet that’s only the fifth-fastest growth in borrowing among the 11 states, and it’s slightly above the 16% national growth rate.

By the way, the fastest growth in debt among the 11 big states was found in Nevada at 31%. The slowest was New York at 8%.

Bottom line

As 2023 starts, the typical Californian looked to be in solid financial shape, at least when managing his household debts.

That’s not terribly surprising considering generous government aid offsetting coronavirus’s economic chill, record-low unemployment and significant pay hikes across California.

However, these strong payment histories, plus other signs of continued economic vigor, suggest the Fed’s fight to chill an overheated economy is nowhere complete. So expect the Fed’s inflation battle — i.e., more rate hikes — to continue.

Don’t forget these yearend stats miss any impact of the recent slew of the technology industry’s wave of layoff announcements. So both the level of borrowings, as well as billpayment patterns, will be numbers to watch as signals of consumer distress.

P.S. It’s also worth noting that these debt figures only track folks with credit histories. So these trends don’t include the bill-paying challenges of folks lacking a credit score, a flock that’s decidedly less financially fit than the typical Californian.