What pandemic? Credit Scores hit record highs
Bottom Line: Conventional wisdom often isn’t wise. Take for example, South Florida’s real-estate market entering the pandemic. In my February 26th story The South Florida Real-Estate boom is back, I had this to say: There tends to be a bit of a ying-yang effect with stock market selloffs and South Florida real-estate. Aside from the Great Recession which took everything lower, traditional corrections in the stock market have provided positive catalysts for real-estate with investors having money on the sidelines. The timing of the sudden surge along with a correction in stocks could provide even more fuel for South Florida’s real-estate fire early in 2020. I recall several listeners questioning my summation given the unprecedented nature of the pandemic and the rapidly rising unemployment rate as lockdown policies began to set in. I understood the skepticism at the time, because the uncertainty was different than what we’d experienced previously, but my analysis showed historical trends in favor of real-estate earlier this year were likely to accelerate as a result of the pandemic with more people staying at home - rather than leading to a collapse in the market. Similar but different are our credit scores.
While the unemployment rate remains about double what it was prior to the pandemic, those who’ve remained employed, or regained employment are generally doing well. The average American is saving money on travel (including commuting to and from work), on interest rates which are at record lows reducing the cost of all forms of debt and on extras like eating out and entertainment generally. Meanwhile, based on the most recent jobs report, the average fulltime employed person has never earned more – with compensation rising nearly 6% above a year ago. Add in record high stocks prices padding the retirement and like investment accounts of more than half of adults and it’s logical that our personal financial health is still improving. So, while those out of work are no doubt hurting right now, those able to work are generally thriving financially. That’s now reflected in record high credit scores.
According to FICO, the average credit score is a record high 711. That’s a 5-point gain over just a year ago and it’s a 25-point gain over the lows hit during the previous recession. Notably, the average American currently has a good credit score which further reduces the cost of servicing debt and ironically one that’s better than when the economy was producing record low unemployment and record high wages prior to the pandemic. None of us would have chosen what 2020 has brought us, ironically though, for tens of millions of Americans – they're better off financially today as a result of the pandemic. This is the latest case of conventional wisdom not always being wise.
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