Whoa, how we owe

If the number of foreclosures and bankruptcy filings didn’t tell you Nevada’s consumers stand on shaky financial ground, perhaps a new study will convince you of the fiscal peril visiting a legion of locals.

Web site MensHealth.com has named Las Vegas America’s top city for the amount of personal debt — credit card balances, auto loans, home loans and other consumer financing — its residents carry. And those considerable obligations could worsen an already stagnant local economy, experts say.

Editors from MensHealth.com didn’t comment for this story by press time. But a summary of criteria they used to develop their roster listed statistics including foreclosure rates, housing prices, bankruptcy filings, credit scores, levels of credit debt and credit usage.

Las Vegas or Nevada dominate at least a few of those indicators.

The state has spent most of the last year as No. 1 in the nation in foreclosures, according to Irvine, Calif., real estate research firm RealtyTrac. Las Vegas landed among the markets experiencing the biggest slides in housing prices — 20.2 percent year-over-year in the first quarter, according to the National Association of Realtors — and the state frequents the top 10 list in number of bankruptcies. And a recent TransUnion study found the Silver State has a higher percentage of consumers delinquent on credit card payments than any other state.

The West dominated MensHealth.com’s list of worst cities for debt, with seven of the top 10 falling within or west of the Rockies.

Billings, Mont., posted the lowest load of personal debt.

Trends among local consumer agencies testify to growing debt loads in Southern Nevada.

Michele Johnson, president and chief executive officer of Consumer Credit Counseling Service in Las Vegas, said the nonprofit’s client base jumped 70 percent this spring compared with a year ago. The stories she hears from the group’s newest clients revolve mostly around housing, with interest-only and option adjustable-rate mortgages squeezing homeowners who can’t afford rising borrowing costs.

"I’ve never seen it this bad. Never," said Johnson, who’s worked for the service since 1982.

Reasons for high debt in Las Vegas stump experts. But Johnson speculated the influx of residents and high cost of living play roles.

"A lot of folks move here knowing that jobs are very plentiful, so they uproot themselves, move here with minimal assets and find the cost of living is much higher than they anticipated," Johnson suggested. "Insurance and day-care costs are very high, and though jobs are plentiful, they’re not necessarily well-paying."

The result: Consumers fall back on credit cards to supplement income and meet monthly expenses.

Throw in exotic mortgages, which tens of thousands of local consumers took out from 2005 to 2007 to buy homes, and the problem compounds, Johnson said. As interest rates adjusted upward, housing payments ate into earnings and forced expenses ranging from food to utility bills onto plastic.

Snowballing debt, in turn, makes it tougher for consumers to respond to economic contraction.

"Consumers (with substantial obligations) just don’t have the flexibility to spend, and any hit to their income becomes magnified through the burden of keeping current on their debt," said Joel Naroff, an economist and president of Naroff Economic Advisors in Holland, Pa. Markets experiencing economic downturns would suffer even more if residents carry big debts, he added.

Rising debt also hurts economies because it leaves consumers with less discretionary cash. The drop in spending on nonessentials hits big-ticket items hardest, with buyers picking up fewer cars, appliances, televisions and other high-dollar goods, Naroff said. Smaller operations, including restaurants and local retailers, suffer as well.

"A lot of people used their homes, especially if they got a year or two of price increases, to get home equity lines of credit and loans, and those loans became an important source of income," Naroff said. "Those (equity) funds purchased a lot of goods."

It’s not the first time consumers overextended themselves en masse, Naroff said, and he expects the historic cycles to repeat themselves. That means indebted consumers will retrench in the next two to three years, cutting back on credit and improving their balance sheets.

But Naroff noted one key difference this time around that could lengthen recovery time. Unlike previous eras, big mortgages anchor today’s heavy debt loads, and those heavy obligations mean "it’s really going to take a while to get things back together again," Naroff said.

"It’s going to spread at least through next year," he said. "How much farther is hard to know. Part of it will depend on how the economy bounces back."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.

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