Consumer credit trends

[LC]

A good update:

 

https://www.bloomberg.com/opinion/articles/2019-05-15/millennials-are-helping-to-sound-the-credit-card-alarm?srnd=premium

 

First, the charge-off rate among card issuers in the first quarter increased to the highest level in almost seven years

 

Discover CEO Roger Hochschild told Surane in an interview that “in general, we have been contracting credit policy at the margin and tightening” because of the length of the economic expansion.

 

Some 8.05% of outstanding credit card debt among Americans between the ages of 18 and 29 was delinquent by at least 90 days, the highest level since early 2011

 

The New York Fed report noted that the number of credit inquiries in the past six months, an indicator of demand for credit among consumers, fell to the lowest level since the data begin.

 

 

[Jurgis]

After a drought of offers in 2016-17, I'm now getting a bunch of open-cc-get-$500 offers that I'm too cheap to refuse.  ::)

[Guest Schwab711]

A good update:

 

https://www.bloomberg.com/opinion/articles/2019-05-15/millennials-are-helping-to-sound-the-credit-card-alarm?srnd=premium

 

First, the charge-off rate among card issuers in the first quarter increased to the highest level in almost seven years

 

Discover CEO Roger Hochschild told Surane in an interview that “in general, we have been contracting credit policy at the margin and tightening” because of the length of the economic expansion.

 

Some 8.05% of outstanding credit card debt among Americans between the ages of 18 and 29 was delinquent by at least 90 days, the highest level since early 2011

 

The New York Fed report noted that the number of credit inquiries in the past six months, an indicator of demand for credit among consumers, fell to the lowest level since the data begin.

 

Delinquencies were at long-term lows between 2013-2015. The chart shows that delinquency rates are still below 20 year trends for each age group.

 

Maybe it's the beginning of bad news but a slight uptick from multi-decade lows could also be an indicator of healthy credit availability.

 

Not my insight:

[Parsad]

A good update:

 

https://www.bloomberg.com/opinion/articles/2019-05-15/millennials-are-helping-to-sound-the-credit-card-alarm?srnd=premium

 

First, the charge-off rate among card issuers in the first quarter increased to the highest level in almost seven years

 

Discover CEO Roger Hochschild told Surane in an interview that “in general, we have been contracting credit policy at the margin and tightening” because of the length of the economic expansion.

 

Some 8.05% of outstanding credit card debt among Americans between the ages of 18 and 29 was delinquent by at least 90 days, the highest level since early 2011

 

The New York Fed report noted that the number of credit inquiries in the past six months, an indicator of demand for credit among consumers, fell to the lowest level since the data begin.

 

CC delinquencies are up, but from everything I've read LOC's, mortgages, etc are being paid on time and are manageable both in the U.S. and Canada.  It's certainly worth keeping an eye on, as mortgage renewals come up and rates at some point continue to go higher.  I would guess that budgets are strained, but not at a breaking point yet...so you are seeing delinquencies in credit cards increasing rather than secured loans like auto, mortgage or LOC's.  You have near full employment with competitive wages available again in both countries, so households are managing inflation, increased rates, etc.  It's highly unlikely that the economy will tank going into an election year as well...Trump will do everything he can to get votes and keep the economy running hot.  Cheers!

[Castanza]

Subprime auto loans and defaults are also worth keeping an eye on. Strange how these rates are climbing in a relatively "good" economy with good jobs numbers.

[TwoCitiesCapital]

Subprime auto loans and defaults are also worth keeping an eye on. Strange how these rates are climbing in a relatively "good" economy with good jobs numbers.

 

That always happens though in the maturing of the cycle. As rates move higher, lenders can accept more defaults and still end with the same, or higher, income due to the higher rates.

 

Riskier loans means defaults get higher even if the economy is strong.

 

It's not to say that there's nothing to worry about, but you can't just look at the data in a vacuum like that.

[Castanza]

Subprime auto loans and defaults are also worth keeping an eye on. Strange how these rates are climbing in a relatively "good" economy with good jobs numbers.

 

That always happens though in the maturing of the cycle. As rates move higher, lenders can accept more defaults and still end with the same, or higher, income due to the higher rates.

 

Riskier loans means defaults get higher even if the economy is strong.

 

It's not to say that there's nothing to worry about, but you can't just look at the data in a vacuum like that.

 

I mean I get your point, but I'm not only looking at that data. I was just adding it to the mix. No defaults on cars probably wont bring down the economy. But If we hit a recession it will have some big implications. Especially when you look at how inflated used car prices are and how over saturated the market is. You have used pickups with 200k miles on them selling for 6-8k less than a new one. If we hit a recession, I think the auto industry will be one of the first to take a dive. It's also worth noting that if your willing to take out a risky loan on a 70k vehicle then that lack of financial aptitude probably carries over into other aspects of your life.

[Cigarbutt]

Subprime auto loans and defaults are also worth keeping an eye on. Strange how these rates are climbing in a relatively "good" economy with good jobs numbers.

That always happens though in the maturing of the cycle. As rates move higher, lenders can accept more defaults and still end with the same, or higher, income due to the higher rates.

 

Riskier loans means defaults get higher even if the economy is strong.

 

It's not to say that there's nothing to worry about, but you can't just look at the data in a vacuum like that.

I mean I get your point, but I'm not only looking at that data. I was just adding it to the mix. No defaults on cars probably wont bring down the economy. But If we hit a recession it will have some big implications. Especially when you look at how inflated used car prices are and how over saturated the market is. You have used pickups with 200k miles on them selling for 6-8k less than a new one. If we hit a recession, I think the auto industry will be one of the first to take a dive. It's also worth noting that if your willing to take out a risky loan on a 70k vehicle then that lack of financial aptitude probably carries over into other aspects of your life.

https://wolfstreet.com/2019/05/15/subprime-bites-serious-auto-loan-delinquencies-spike-to-q3-2009-level-despite-strongest-labor-market-in-years/

 

So two perspectives on this.

1-Sales are growing and so are defaults and pent-up demand will continue to manifest itself (see slide 37 Fairfax Financial 2019 annual slides)

2-I was following this in 2006-7-8 and it seems that defaults are building up before an actual decline in car sales or general economic activity.

 

Most of the stress is building up in the subprime segment (especially the younger age groups) which is relatively smaller vs total auto loans but there has been a very significant absolute increase in the volume and outstanding value of subprime loans (and duration of loans has increased).

 

If interested, there was a related thread:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/leap-puts-on-sub-prime-auto-lenders/