One of the best reports on consumer debt, the Quarterly Report on Household Debt and Credit, released on time, proving that some professionals worked hard during the government shutdown. The report is produced by Liberty Street Economics which is a funny twist taken by the group’s office at 33 Liberty Street in NYC; it is the New York Federal Reserve. This once again proves that economists are not boring people. At the St. Louis Fed, they call their all-inclusive repository Fred. Yes, that is Fred at the Fed. A bit more exciting than the Philly Fed, perhaps.
- Total household debt increased modestly, by $32 billion, in the fourth quarter of 2018, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data.
- Although household debt balances have been rising since mid-2013, their sluggish growth in the fourth quarter was mainly due to a flattening in the growth of mortgage balances.
- Auto loans, which have been climbing at a steady clip since 2011, increased by $9 billion, boosted by historically strong levels of newly originated loans.
- After years of growth among borrowers across the credit score spectrum, 2018’s strength in auto loans was primarily driven by those originated by the most creditworthy individuals, while originations to those with scores below 720 have leveled off, albeit at high volumes.
- The high volume of prime originations has caused a quality-shift in the outstanding pool of auto loans and, as of the fourth quarter of 2018, 30 percent of the $1.27 trillion in outstanding debt was originated to borrowers with credit scores over 760.
- There are now more subprime auto loan borrowers than ever, and thus a larger group of borrowers at high risk of delinquency.
- There were $144 billion in newly originated auto loans, continuing the nine-year growth trend. In fact, auto loan originations totaled $584 billion in 2018, the highest year in the 19-year history of the data for auto loan originations (in nominal terms).
But, new credit volumes are not surging, but watch for the repayment cycle, which is starting to see some bumps in the road.
- Mortgage balances, shown on consumer credit reports on December 31 stood at $9.1 trillion, essentially unchanged from the third quarter of 2018.
- Balances on home equity lines of credit (HELOC), continued their declining trend from 2009 with a drop of $10 billion in the fourth quarter and are now at $412 billion, the lowest level seen in 14 years.
- Non-housing balances increased by $58 billion in the fourth quarter, with auto loans increasing by $9 billion, credit card balances going up by $26 billion, and student loan balances by $15 billion.
But, watch Out: Bankrupts are at Low Levels; New Inquiries are Down, Yet Account Closings Surge
- About 195,000 consumers had a bankruptcy notation added to their credit reports, five thousand fewer than in the fourth quarter of 2017.
- The number of credit inquiries within the past six months – an indicator of consumer credit demand – declined to the lowest level seen in the history of the data.
- Account closings were at their highest level since 2010.
Record low levels often mean a backflow in processing, so watch out for Bankrupts. But, for decreasing new account volumes and high levels of account closings expect to see a dip in total number of U.S. credit card accounts.
Watch for our upcoming review of credit card acquisitions, which will publish in March. The last two bullet points are key takeaways!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group