Study: Puerto Ricans’ personal wealth down 22%

Written by  //  October 7, 2014  //  General Biz News  //  No comments

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Many households in PR are at the point where cash generated by assets is insufficient to service the debt taken on to acquire the asset, particularly regarding mortgages.

Many households in Puerto Rico are at the point where cash generated by assets is insufficient to service the debt taken on to acquire the asset, particularly regarding mortgages.

Puerto Rico residents have seen their personal wealth levels drop by a whopping 22 percent between 2009 and 2013, based on the performance of the Puerto Rico Stock Index over that same period of time, according to an analysis of the numbers by private firm H. Calero Consulting.

In its monthly “Economic Pulse” publication, the firm cites figures provided by the Office of the Commissioner of Financial Institutions, which confirmed that island residents are still reeling from the effects of the recession.

“Disturbing findings of wealth destruction in Puerto Rico, particularly for households, emerge from the performance of the PRSI, which is mainly made up of financial stocks,” the firm says in its analysis.

“[From] 2005 [to] 2013, market valuation of these stocks plunged $14 billion. Add to this an estimated $5.5 billion in loss of market value of mutual funds plus $7.1 billion in personal financial assets and an estimated $12 billion in appraised property values for a total destruction of wealth of approximately $39 billion. This is large enough to pose a real threat to the stability of the overall Puerto Rican economy,” the firm notes.

Another significant setback that island residents are facing is the rapidly rising levels of foreclosures, which work against the goal of many of having and keeping a home. With many households unable to pay their mortgages, the delinquency rate reached 15.9 percent as of July 2014, with the past 12-month trend on the rise.

“The number of delinquent properties hit 68,666 and the past 12-month trend continues rising. As of July 2014, banks foreclosed 144 properties, which were low, compared to 12-month trend but the number of foreclosures in process hit 17,508 and the trend is on the rise,” the analysis showed.

While the average household in the U.S. mainland is faring relatively well, its Puerto Rico counterparts are still struggling to recover from the economic depression that started in 2006 and has not ended yet.

“These worrisome findings relate to the prolonged recession the island has experienced since 2006, stalled income, high unemployment, and a fiscal crisis that has imposed higher taxes and increased utility costs,” H. Calero Consulting said.

Median household income in Puerto Rico has stalled; peak earners by age group depict negative income growth, particularly the less than 25-year-olds and 25-to-44-year-olds; household growth is anemic and declining in two age groups, the firm noted.

“There are dynamic changes in household composition and a large baby-boom generation is currently hitting the older age groups. In contrast, the decline in households by 25-to-44-year-olds is a sign of economic distress and a troubling number for the labor force, housing, and other spending categories,” the report said.

“Double-digit declines in net worth and wealth between 2005 and 2013 signal retirement plans will be postponed for those 60-plus-age groups. Former homeowners are now becoming renters since they do not have the money to continue paying their home mortgages,” the report further noted.

“Puerto Rico needs to change from an economy based on consumption into one based on productivity and growth. Welfare provides society with a safety net but it will not solve our unemployment and poverty problems. The upcoming tax reform in Puerto Rico offers a great opportunity to tackle these disturbing trends,” the analyst firm concluded.

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