U.S. Households Climb Out of Financial Distress

The CredAbility Consumer Distress Index says that for the first time since the third quarter of 2008, U.S. consumers have clawed their way out of financial distress. 

Housing was the main driver of consumers' improved financial condition this quarter, as late payments on mortgages hit a three-year low and housing costs dropped as more homeowners cut their payments by refinancing. 

The average household also held a tighter rein on his household budgets, which helped drive the savings rate to a one-year high in June. Net worth also ticked up. 

Tracking finances 

The quarterly index, published by CredAbility, a nonprofit credit counseling and education agency, tracks the financial condition of the average U.S. household by measuring five categories: employment, housing, credit, how families manage household budgets and net worth. The index has a national score, a ranking of all 50 states and 77 of the largest Metropolitan Statistical Areas (MSAs). 

A score below 70 indicates a state of financial distress, but U.S. households scored 71.3 in the second quarter on the Index's 100-point scale. The 71.3 score is an increase of 1.4 points from the previous quarter and 4.6 points over the past year. 

"Slowly but surely, consumers have worked to repair their finances during the past four years by paying down debt and better managing their credit, said Mark Cole, executive vice president of CredAbility. "They are more in control of their household budgets, increasing their savings even as gasoline prices have risen and the drought has started to affect food prices. While millions of people continue to battle unemployment, the majority of households with stable jobs and housing has made wise financial choices and are moving in the right direction."Â 

A closer look 

On the local level, however, several major cities remain in financial distress, with three of the nation's five largest MSAs in Florida topping the list. Orlando is the most distressed city, followed by Tampa-St. Petersburg, Riverside-San Bernardino, Calif., Las Vegas and Miami-Fort Lauderdale. 

Among the 30 largest MSAs, the healthiest cities are Boston, Washington, D.C., Minneapolis-St. Paul, Dallas-Fort Worth and Denver. 

Only 15 of the 50 states scored below 70. Nevada had the lowest score at 62.70, followed by Georgia, Mississippi, Michigan and Florida. Nevada and Florida are "battleground" states in the November presidential election. 

The four other closely contested states -- Virginia, Ohio, Iowa and Colorado -- all scored above 70. The national highlights for the second quarter included the following: 

Mortgage delinquency rates continued to improve, with 6.55 percent of homeowners behind on their mortgage payments, a significant improvement compared to 7.64 percent in the first quarter. At the state level, California's delinquency rate fell from 6.82 percent to 5.88 percent during the quarter.

The index's unemployment score improved by only one-half point, from 59.4 to 59.8, and continued to drag down the index.

For the first time in three years, the score for the Credit category declined. Still, the index score for the Credit category is 86.7, indicating that households' credit is in far better shape now than at any time since 1996. 

Orlando had the lowest score among all large MSAs in the housing category, largely due to a mortgage delinquency rate of 13.58 percent. Riverside-San Bernardino is the most distressed MSA in the unemployment category, though the region has seen a pickup of 11,000 jobs during the past year. 

Major cities on the Eastern Seaboard and Texas laid claim to the households in the best financial health. Boston and Washington, D.C. were the only two cities that scored better than 77 while Dallas at 73.4 and Houston at 72.4 were among the top six. 

Among the MSAs with a population of 2 million or less, Omaha had the highest score at 79.6 while four cities in California and Florida reported the highest levels of financial distress. Bakersfield had the lowest score at 62.6, followed by Fresno, Calif., at 62.7, Bradenton-Sarasota, Fla. at 63 and Jacksonville at 63.1.