The pace of Californians filing for bankruptcy is at a four-year high.
I’ve been on a bit of a quest of late to figure out why Californians are so grumpy this summer. One sign of those anxieties was the Conference Board’s consumer confidence index for the state dropping to a four-year low this summer.
So to get some additional clues about financial insecurities in the Golden State, I dialed my trusty spreadsheet into the New York Fed’s quarterly analysis of bill-paying habits across the nation and 11 larger states – including California. The study is based on a sampling of folks with credit histories, a flock of most consumers, but not all.
Yes, the second-quarter report shows more consumers are now struggling in California and across the US. But those challenges seem mild, historically speaking.
For example, new personal bankruptcies in California are being filed at a rate of 40 per 1,000 people – that’s the fastest pace since 2020’s second quarter, just as the pandemic walloped the economy. This pace is up 25% in a quarter and 38% higher in a year.
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However, to be fair, California bankruptcies are also 29% below average filings seen in the pre-coronavirus span including 2018 and 2019. Basically, the purported good ol’ days.
Plus, the state’s bankruptcy jump is in line with national trends: 47 filings per 1,000, up 12% in a quarter, 18% higher in a year, but down 38% vs. 2018-19.
Now, the uptick in this yardstick of extreme monetary distress parallels another consumer warning sign: more new foreclosures.
In the second quarter, there were 12 Californians entering foreclosure per 1,000 people, up 20% in a quarter and 50% higher in a year. It’s the highest share since 2020’s first quarter.
Still, these problems run 23% below 2018-19 activity. And for those thinking “Great Recession?” – it’s 97% below the worst of that bubble-bursting era.
And nationally, similar modest foreclosure increases were found: 16 filings per 1,000 in 2024’s second quarter, up 7% in a quarter and 14% higher in a year – but off 39% vs. 2018-19.
Bigger picture
Skipped payments may be more frequent but when you look at the typical Californian or American, you find relatively few overdue bills.
In the second quarter, 1.24% of California debts were running 90 days or more late. That was a slight improvement from 1.27% a quarter earlier. And, yes, it’s up from 0.95% a year ago.
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Still, tardy California bill payers are significantly below the 1.87% rate of 2018-19.
Again, this trend tracks national habits: 1.83% bills were late – flat with the first quarter earlier, up from 1.48% a year ago but below 4.12% in 2018-19.
Bottom line
If solid bill paying is a sign of economic health, what about the size of those debts?
Californians have long juggled huge debts, largely due to giant mortgages. At $86,310 per capita in the second quarter, California consumer borrowings are 40% higher than the nation’s $61,853.
But that debt gap is narrowing. Since 2003, Californians carried an average 49% more debt than the typical American.
Let’s also note that Golden State consumers cooled their borrowings in the second quarter, with statewide debts down 0.7% in three months. US debts were flat in the quarter.
Is this economic smarts of Californians in uncertain times? Or does it reflect the significant California financial skittishness the consumer confidence poll discovered?
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Still, California debts are up 3.6% in a year – above the 3.2% annual growth rate since 2003.
And the new debts are not far out of line with the typical American’s borrowings that expanded 3.1% in a year – slightly below the 3.3% historic US growth rate.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]