High housing costs erode confidence in U.S. economy

Research: Over half of consumers report interest rate cuts would not impact their likelihood to buy a home

COLUMBUS, Ohio, June 5, 2024 /PRNewswire/ -- As American consumers continue to debate the health of the U.S. economy, a recent consumer survey from Nationwide finds an overwhelming majority of those polled (78%) still rate it as poor or fair, with that finding marking a 6% improvement since last year. Of these individuals, 80% cite inflation, 51% point to wages not keeping up with the high cost of living, and 50% cite high housing costs as the reasons for their less positive outlook, according to Nationwide's 2024 Economic Impact survey, released today.

The survey of 2,000 U.S. consumers aged 18 or older found people reporting that economic strains are severely impacting their personal finances, with the vast majority (64%) rating their personal financial situation as poor or fair, which increased slightly from 61% last year and could be in part due to housing expenses.

In an environment that is stretching the financial well-being of consumers across all income brackets, renters are disproportionately feeling the pressure. An overwhelming 77% of renters rate their personal finances as fair or poor, compared to 53% of homeowners. The burden of escalating housing costs has forced renters to make difficult decisions, including relocating or downsizing at twice the rate of homeowners (20% vs. 8%). Despite these challenges, renters are surprisingly more optimistic about the future. Two in five expect their personal financial situation to improve over the next six months, 12% higher than that of homeowners.

These mixed reports stand in contrast to other economic indicators that paint a more positive picture of the evolving economic climate for Americans, including a Congressional Budget Office report that found household purchasing power increasing across all income levels since 2019 and data from the Bureau of Labor Statistics that show a healthy job market, with more job openings than unemployed workers.

Taken together, these reports suggest an economic landscape that many Americans find stressful and uncertain, making it challenging to navigate and plan for long-term financial security.

According to Nationwide's survey, housing costs appear to be impacting consumers' financial wellbeing in myriad ways, including:

• Jeopardizing long-term financial plans: About one in five (21%) have withdrawn money or are considering withdrawing money from their retirement savings to cover housing costs – a move that not only depletes savings but also carries significant tax implications. 33% say it's now more difficult to save for retirement.
• Deferring critical home maintenance: 40% of homeowners have delayed necessary structural repairs to their home, with 69% saying costs are too expensive and 48% saying they're saving for other financial priorities right now (such as paying off debt or other expenses).
• Dampening their housing market outlook: Two-thirds of consumers (66%) expect housing costs to continue rising over the next 12 months, compounding their financial stress and influencing their economic behaviors and outlooks. A cut in interest rates might not have a significant effect on consumer behavior either, as a majority of people (53%) said that a rate cut would not impact their likelihood to purchase a home. Almost half of all renters agree that a rate cut would not make them more likely to purchase a home.

"While many Americans are feeling financially strained, nowhere is that strain more apparent than for lower earners and renters, who are reacting strongly to the daily budget pressure they feel from high housing costs and sticky inflation," said Kathy Bostjancic, Nationwide's Chief Economist. "At the same time, we see improving macroeconomic conditions, including wages keeping pace with inflation. This tension between rapid price increases over the past several years and the evolving big picture is what has made today's economy challenging to understand. The good news is that forecasts suggest that relief should be coming in the year ahead and these two seemingly contradictory realities should begin to agree more."

Consumers are making tough tradeoffs to offset high costs and job security concerns

As consumers grapple with an unpredictable economic landscape, many have compounding worries about the job market. Thirty percent (30%) of respondents who are concerned about the labor market cite worries around job security and potential layoffs as a primary reason. Part of this concern lies with the impact of artificial intelligence (AI), with 71% of consumers fearing job automation and 43% worried about their own job security due to AI advancements.

To help counteract current economic concerns, 57% of Americans are deferring large purchases and 50% are eating out less often, while 19% are relying more on credit cards to get by.

When it comes to insurance, consumers are looking to get the most value and cut costs wherever they can. More than three-fourths (76%) reported they have either reviewed or are considering reviewing their insurance policies. One in four (25%) said they have looked for ways to save money on their premiums with their existing policies within the past six months. Similarly, in the next six months, almost 1 in 5 (18%) said they plan to decrease coverage on their existing policies.

Casey Kempton, Nationwide's President of Personal Lines Insurance, noted "As consumers focus on how best to manage their finances during this uncertain economic period, an insurance agent can serve as a valuable partner to help people understand how best to manage the sometimes delicate balance of saving money in the short term without exposing themselves to significant future financial risks."

Guidance from a trusted financial professional can also be a helpful resource as people navigate this economic landscape and make decisions about financial tradeoffs. And yet, many Americans report that they are not seeking professional financial advice, with only about one-fourth (26%) turning to advice from a financial professional today. Of those who don't work with an advisor, many (44%) cite cost as a barrier.

"This tricky economic environment is the ideal time to consult with a financial professional," said Kristi Rodriguez, SVP of the Nationwide Retirement Institute. "Navigating these financial challenges without expert advice can lead to costly mistakes. By partnering with a financial professional, individuals can make sense of and manage their weekly grocery bill while also building a plan to stay on track to help achieve a secure retirement in the future. The key is having someone that can help you see the big picture today, so that you avoid missteps that may jeopardize your long-term goals."

To learn more about Nationwide's 2024 Economic Impact survey, visit news.nationwide.com.

Methodology

Nationwide commissioned Edelman Data & Intelligence (DXI) to conduct a nationally representative online survey of 2,000 US consumer adults aged 18 and older from May 1-15, 2024. The survey was weighted to be representative of the U.S. population by age, gender, region and ethnicity. 69% of respondents claimed household income of $75,000 or less.

As a member in good standing with The Insights Association as well as ESOMAR Edelman Data and Intelligence conducts all research in accordance with local, national, and international laws as well as in line with all Market Research Standards and Guidelines.

About Nationwide 

Nationwide, a Fortune 100 company based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the United States. Nationwide is rated A+ by Standard & Poor's. An industry leader in driving customer-focused innovation, Nationwide provides a full range of insurance and financial services products including auto, business, homeowners, farm and life insurance; public and private sector retirement plans, annuities and mutual funds; excess & surplus, specialty and surety; and pet, motorcycle and boat insurance.

For more information, visit www.nationwide.com.

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This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional. 

This information is general in nature and is not intended to be tax, legal, accounting or other professional advice. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency. 

Nationwide Investment Services Corporation (NISC), member FINRA, Columbus, OH. Nationwide Retirement Institute is a division of NISC. 

Nationwide, the Nationwide N and Eagle and Nationwide Retirement Institute are service marks of Nationwide Mutual Insurance Company © Nationwide 2024  

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Contact:
Mike Switzer
(614) 249-6349
[email protected] 

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SOURCE Nationwide