Sunday, August 12, 2001

Making more, falling behind

Incomes rose in '90s; so did inflation

By Ken Alltucker
The Cincinnati Enquirer

        The economic boom of the 1990s brought unprecedented prosperity to much of the United States.

        People bought bigger homes, better cars. Wall Street became Main Street as more Americans invested in the stock market.

        Despite all that, real gains in wealth managed to bypass the typical Ohio or Kentucky household.

  Previous reports on the 2000 census
        New census figures show that average incomes over the decade struggled to keep pace with living costs in the two states. And people are spending larger chunks of their take-home pay on mortgages than residents did 10 years ago.

        Many have borrowed more to finance better lifestyles, increasingly using their homes' equity for credit.

        “We have spent tomorrow's money today,” said Mary Hurlburt, education director for the nonprofit Consumer Credit Counseling Service of Greater Cincinnati.

        The census figures show that Ohio's median household income of $39,480, when adjusted for inflation, inched up only 1 percent over the decade. Kentucky's median income also grew by 1 percent, to $32,843.

        The real gains were in the number of upper-income homes. The total Ohio households earning $100,000 or more spiked by 337 percent. Kentucky households surpassing $100,000 jumped by 385 percent.

        “It doesn't surprise me that incomes didn't go anywhere,” said George Zeller, senior researcher with the Council for Economic Opportunities in Greater Cleveland. “It is quite clear that the income is widely divergent in the way it grew.”

        Diane Ruberg, 51, of Springfield Township, said she sees the changes firsthand. An administrative assistant for Fifth Third's private banking division, her job is to help some of the Tristate's wealthiest people.

        She said she hasn't seen a similar jump in her paycheck, and the average household income doesn't buy much more than it did a decade ago.

        Yet more people are spending more of their income on mortgages, the new census figures show.

        In 1990, most Ohio residents (54.6 percent) easily made monthly mortgage payments — spending less than 20 percent of household income. The percentage of residents doing that in 2000 dropped to 47.3 percent.

        At the same time, the percentage of households spending at least 35 percent of income on mortgages increased from 11.1 percent to 16.6 percent.

        The new figures are based on an experimental survey of 23,640 Ohio households and 13,920 Kentucky households taken at the time of the 2000 Census. Similar data from the 2000 Census count of all households will not be ready until next year.

        Peg Moertl, Cincinnati's director of neighborhood services, said the jump in mortgage payments is the result of new residential lending strategies.

        A decade ago, lenders would rarely approve loans to prospective home buyers unless they plunked down 10 percent of the home's price up front. Now, lenders require as little as 3 percent for a down payment.

        “They are qualifying for more house and starting off with less equity,” Ms. Moertl said. “People take advantage of the climate to trade up for a bigger house.”

        A similar trend can be found in the automobile industry, said Perrin Burse, chief executive of Burse Investment Advisory Group in Cincinnati.

        People earning moderate incomes are getting caught up in the need to buy the latest models. Lenders have encouraged this by stretching terms of auto loans from five to seven years.

        Yet some people with high incomes or large stock market gains rewarded themselves during the 1990s, a banner decade for luxury car sales, said Ed Murphy, sales manager at Northland Porsche in Forest Park.

        “I think the improved economy has helped stimulate sales,” Mr. Murphy said.

        Part of Ohio's problem, Mr. Zeller said, is its sluggish job growth. His figures show it trailed the national average for 66 months.

        In all, 25 states have higher income levels than Ohio, the census shows. Incomes grew more in states such as Massachusetts and Texas, which saw growth in more high-paying technology jobs.

        “You don't see alarm bells ringing until you compare us to Massachusetts,” said Paul Gottlieb, associate director of the Center for Regional Economic Issues at Case Western Reserve University in Cleveland.

        In other categories, Ohio and Kentucky showed improvement.

        Kentucky's poverty rate of 16.5 percent, still among the nation's highest, is a noticeable drop from 18.3 percent in 1990. The Buckeye State's poverty dropped from 12.5 percent to 11.2 percent.

        But some warn that, with a slowing economy, the poverty rates will be on the upswing. Those with the highest debt levels have the most to worry about, Ms. Hurlburt said.

        She expects more foreclosures if the economic slump continues.

        “We're using our homes for collateral,” she said.

        “We are using it as more than a place to live. We are using it to sustain our lifestyle.”


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