Consumer Credit Market Expected to Remain Strong in 2018 Even in a Rising Rate Environment
December 13 2017 - 8:00AM
In spite of rising interest rates, the U.S. consumer credit market
is poised to perform well in 2018, with well-managed delinquencies
and continued wide access to credit across all products.
TransUnion’s (NYSE:TRU) 2018 consumer credit forecast found that
expected increases to GDP, personal income, total employment and
the Housing Price Index, among other factors, will outweigh
potential negatives such as increasing interest rates and slowing
vehicle sales.
A PDF accompanying this announcement is available
at http://resource.globenewswire.com/Resource/Download/3fe9acc4-5cd8-4ed4-92ed-4945c3022d06.
A video accompanying this announcement is available
at http://www.globenewswire.com/NewsRoom/AttachmentNg/a3596e90-5b08-4440-b52e-2047b852ae8e.
“From a credit performance standpoint, mortgage
loan delinquencies are the biggest story. Serious mortgage
delinquency rates are expected to decline materially next year,
reaching levels not seen since 2005 when TransUnion began tracking
these metrics. This will be driven primarily by strong employment
and rising home prices,” said Matt Komos, vice president of
research and consulting for TransUnion. “Unsecured personal loan
delinquencies will also see very little movement and remain
significantly lower than they were five years ago. While auto loan
and credit card delinquency rates are expected to rise, these
delinquencies are not unplanned in the sense that lenders continue
to steer their respective portfolios in a fashion that suggests
they are still cautiously taking on some risk.
“Despite expected interest rate rises, the prime rate remains
well below historic norms and we believe it will remain at levels
that can still be well managed by most consumers,” added Komos.
“Expected balance growth across all products is a reflection of
strong consumer sentiment rather than an indicator of consumers
struggling to keep up with their obligations. Coupled with
expectations of a strong economy, the consumer credit market is
projected to remain on a healthy trajectory.”
5-Year Trends: Serious Borrower-Level
Delinquency Rates for Key Credit Products** |
Credit Product |
Q4 2013 |
Q4 2014 |
Q4 2015 |
Q4 2016 |
Q4 2017* |
Q4 2018* |
PCT Change in Last 5 Years
(2013-2018) |
Auto Loans |
1.23 |
% |
1.19 |
% |
1.27 |
% |
1.44 |
% |
1.43 |
% |
1.46 |
% |
+18.7% |
Credit Cards |
1.60 |
% |
1.48 |
% |
1.59 |
% |
1.79 |
% |
1.86 |
% |
1.96 |
% |
+22.50% |
Mortgage Loans |
4.31 |
% |
3.40 |
% |
2.46 |
% |
2.28 |
% |
1.83 |
% |
1.65 |
% |
(-61.7%) |
Unsecured Personal Loans |
4.01 |
% |
3.73 |
% |
3.62 |
% |
3.83 |
% |
3.37 |
% |
3.36 |
% |
(-16.21%) |
*Projections; **Serious mortgage, auto loan and personal loan
delinquencies are defined here as those with payments 60 or more
days past due. Serious credit card delinquencies are defined as
those with payments 90 or more days past due. |
For more information about the 2018 TransUnion forecast and to
register for a webinar providing detailed projections, please visit
www.transunioninsights.com/IIR. A direct link to the 2018 consumer
credit forecast webinar may be found here.
Inside the Mortgage Forecast
Three Trends for 2018
- Delinquencies hitting 2005 levels. As housing
prices rise and total employment figures improve, the serious
mortgage delinquency rate (60+ DPD) is expected to drop to 1.65% by
the end of 2018, the lowest level observed since 2005 (the first
year TransUnion began tracking this statistic), down from a rate of
1.91% for Q3 2017. Additional factors impacting lower mortgage
delinquency rates include increases to the labor participation
rate, median household income, and home equity levels.
Consumer-level mortgage delinquency rates have now declined almost
every quarter since peaking at 7.21% in Q1 2010. At that
time, there were 60.1 million mortgage accounts. Since then,
the total number of accounts dropped to a low of 52.0 million in Q4
2016. The current number of accounts is 52.7 million, loosely flat
over the last three quarters, indicating roughly an equal number of
accounts are being paid off as are being originated.
- Rising rates and refinancing. With interest
rate increases expected in 2018, TransUnion believes there will be
a continued reduction in the share of refinanced mortgages as a
percentage of all mortgages. Industry forecasts have refi share
dropping from 35% in 2017 to 28% in 2018.
- Return of HELOCs. While increased interest
rates will likely slow down refinancing activity, with rising home
prices TransUnion expects to see many more homeowners tapping into
their home equity. TransUnion forecasts approximately 1.6 million
HELOC originations in 2018 and about 10 million through 2022. This
is in stark contrast to the previous five-year period, when less
than half that number were originated—4.8 million HELOCs were
opened between 2012 and 2016. TransUnion believes the three largest
uses for these new HELOCs will be: 1) debt consolidation to a lower
interest rate; 2) financing a large expense, such as a home
improvement, and 3) refinancing an existing HELOC or Home Equity
Loan.
Instant
Analysis
“Rising home prices, solid underwriting criteria, and a strong
economy have led to an extremely low level of risk in the mortgage
industry, which will likely continue into 2018. While housing
demand is expected to remain strong headed into the new year, the
question will be how much of a purchase headwind will we face with
tight supply of entry-level housing, rising interest rates, and
expensive ‘move up’ options. Many existing homeowners, already
having refinanced into a low-interest rate mortgage, may be
unwilling or unable to ‘move up’ due to how expensive housing has
become. That lack of mobility can, in turn, put pressure on the
supply of entry-level housing. Additionally, there is uncertainty
regarding the potential impact of current tax reform efforts. One
potential upside may be felt in HELOC lending, as more homeowners
opt to upgrade their existing housing through home improvement, as
opposed to moving into a new home. Though HELOCs were
somewhat forgotten over the past five years, this, combined with
record levels of home equity, will likely lead to a HELOC
resurgence in the next few years.”
- Joe Mellman, senior vice president and TransUnion’s
mortgage line of business leader
60-Day+ Mortgage Delinquency Rate and Average
Mortgage Debt per Borrower |
Q4 2009 |
Q4 2010 |
Q4 2011 |
Q4 2012 |
Q4 2013 |
Q4 2014 |
Q4 2015 |
Q4 2016 |
Q4 2017* |
Q4 2018* |
|
7.16% |
|
|
6.65% |
|
|
6.15% |
|
|
5.38% |
|
|
4.31% |
|
|
3.40% |
|
|
2.46% |
|
|
2.28% |
|
|
1.83% |
|
|
1.65% |
|
$190,324 |
|
$186,488 |
|
$185,594 |
|
$184,753 |
|
$187,228 |
|
$187,311 |
|
$189,914 |
|
$194,415 |
|
$200,935 |
|
$205,534 |
|
*Q4 2017 and Q4 2018 include projections |
Inside the Credit Card Forecast
Three Trends for 2018
- Risk distribution
stabilizing? The rise in subprime
and near prime credit card originations in 2016 and the first part
of 2017 will continue to impact the serious credit card delinquency
rate. However, the risk distribution of new accounts is stabilizing
and has recently been moving toward near prime and better, which
keep delinquencies at manageable levels.
- Delinquencies to tick up. The rate of severe
delinquency (90+ DPD) per consumer is expected to increase by 10
basis points to conclude 2018 at 1.96%. This would mark the fourth
consecutive annual rise, though serious delinquencies are expected
to remain well below recession levels – nearly 3% at the end of
2009. The largest driver for an increase in delinquencies on a
macroeconomic level is the expected increase in the prime interest
rate.
- Consumer credit card debt to rise slightly.
The average card balance per consumer is expected to continue to
rise, driven by higher total employment and median household
income. While TransUnion is forecasting only about a 1% yearly
rise, this would constitute the fifth consecutive annual
increase.
Instant Analysis
“The credit card marketplace is a strong example of the
risk-reward paradigm of credit. Lenders are continually looking for
the right balance – providing credit cards to both the least risky
and higher-risk consumers in the most prudent manner while also
trying to control risk and generate reasonable returns for
investors. Yes, delinquencies are slowly rising, but it’s happening
at a time when many lenders feel they have the confidence to take
on some risk. While the overall loss rate is also going up, the
loss rate is expected to increase at a slower pace in
2017-2018 versus the compound annual growth rate since 2014.
The data support their efforts: the subprime risk group only
constitutes about 10.6% of all credit card accounts as of the third
quarter of 2017. While higher than the previous year – 9.9%
in the third quarter of 2016 – it still falls well short of levels
observed during the recession, when 13.4% of all credit cards went
to subprime consumers in the third quarter of 2009. On the balance
front, we continue to see moderate increases, but this is to be
expected as consumer confidence and GDP continue to
strengthen.”
- Paul Siegfried, senior vice president and TransUnion’s
credit card line of business leader
90-Day+ Credit Card Loan Delinquency Rate and
Average Credit Card Loan Debt per Borrower |
Q4 2009 |
Q4 2010 |
Q4 2011 |
Q4 2012 |
Q4 2013 |
Q4 2014 |
Q4 2015 |
Q4 2016 |
Q4 2017* |
Q4 2018* |
|
2.97% |
|
|
2.17% |
|
|
1.90% |
|
|
1.75% |
|
|
1.60% |
|
|
1.48% |
|
|
1.59% |
|
|
1.79% |
|
|
1.86% |
|
|
1.96% |
|
$6,043 |
|
$5,609 |
|
$5,485 |
|
$5,371 |
|
$5,324 |
|
$5,329 |
|
$5,337 |
|
$5,486 |
|
$5,626 |
|
$5,675 |
|
*Q4 2017 and Q4 2018 include projections |
Inside the Auto Finance Forecast
Three Trends for 2018
- Delinquency rate increase to slow down.
Serious delinquency rates (60+ DPD) will continue their upward
climb, but at a more modest pace and remain below the peak levels
seen in 2008-2009. The pullback in prime, near prime and subprime
segments has led to a share shift in favor of prime plus and super
prime segments by 2.3 percentage points. We expect this trend
to continue in 2018. The shift in lending toward lower risk
consumers will help cushion the market over the next few
quarters.
- Hurricane impact and the shift to used vehicle
financing. In the short-term, TransUnion expects the
impact from Hurricanes Harvey and Irma to temporarily drive demand
for new vehicle sales in affected markets (500,000 to 900,000
replacement vehicles). In the long-term, we expect the shift
to used vehicle sales to offset some of the waning demand for new
vehicle sales.
- Larger down payments. The average amount
financed for an auto loan is expected to grow at a slower rate in
future quarters. Much of this has to do with the decelerating
growth rate in the average balance of new loans, as lenders
increasingly require larger down payments to meet certain
underwriting requirements (e.g., lower loan-to-value ratios and
shorter terms). This is also being impacted because of less equity
in vehicles in which consumers are trading back.
Instant Analysis
“TransUnion anticipates many shifts in the auto loan market
during the course of 2018. While the growth in auto loan balances
is likely to continue to slow in 2018, we may see some exceptions
to that trend, especially in early 2018. The impact of the
hurricanes in Florida and Texas will likely result in up to 900,000
replacement vehicles being purchased, which would impact both total
balances and debt per borrower in the early part of 2018. The shift
from new to used vehicle purchases will also impact overall
balances. As in recent years, we should see the usual
seasonal shifts in serious delinquency rates. Delinquencies may
fall nearly 20 basis points by the mid-point of 2018 before rising
to conclude the year about three basis points higher than we expect
them to be at the end of 2017.”
- Brian Landau, senior vice president and TransUnion’s
auto line of business leader
60-Day+ Auto Loan Delinquency Rate and Average
Auto Loan Debt per Borrower |
Q4 2009 |
Q4 2010 |
Q4 2011 |
Q4 2012 |
Q4 2013 |
Q4 2014 |
Q4 2015 |
Q4 2016 |
Q4 2017* |
Q4 2018* |
|
1.59% |
|
|
1.27% |
|
|
1.11% |
|
|
1.15% |
|
|
1.23% |
|
|
1.19% |
|
|
1.27% |
|
|
1.44% |
|
|
1.43% |
|
|
1.46% |
|
$14,922 |
|
$15,031 |
|
$15,377 |
|
$16,061 |
|
$16,781 |
|
$17,456 |
|
$18,004 |
|
$18,391 |
|
$18,588 |
|
$18,694 |
|
*Q4 2017 and Q4 2018 include projections |
Inside the Personal Loan Forecast
Three Trends for 2018
- Prime and above borrowing rising. TransUnion
projects unsecured personal loans to continue to grow among prime
and above borrowers, leading to higher balances and lower
delinquency rates. The share of personal loans issued to subprime
borrowers has been dropping in recent years. In Q3 2017 (latest
quarter available), this percentage stood at 26.3%, down from 27.6%
in Q3 2016. Five years ago (Q3 2012), 29.7% of all personal loans
were held by subprime borrowers.
- Delinquencies stable. As originations skew
toward lower-risk consumers, delinquency levels should remain about
the same – shifting from an expected 3.37% at the end of 2017 to
3.36% to close 2018. With that projection, personal loan
delinquencies may drop on an annual year-end basis for the second
consecutive year after reaching 3.83% to close 2016.
- More growth expected. While FinTechs continue
to increase their share of the personal loan market, TransUnion
expects to see more activity in this space by both banks and credit
unions as a competitive reaction. This should lead to even more
growth in balances and volume of loans.
Instant Analysis
“The consumer lending industry has moved past the difficulties
of 2016, when FinTech lenders encountered funding challenges and
subprime finance companies were facing regulatory uncertainty
resulting from the CFPB’s pending small dollar rule. The volume of
unsecured personal loans has rebounded exceptionally well in 2017;
we expect more of the same in 2018, especially as banks and credit
unions place a larger emphasis on this loan type. The fact that
originations are skewing toward lower-risk consumers bodes well for
the overall delinquency rate, and is especially important as
consumer debt per borrower is expected to extend to nearly $8,500.
This is significant considering that it would prove to be a 35%
increase from levels seen just a few years ago at the end of
2013.”
- Jason Laky, senior vice president and TransUnion’s
consumer lending line of business leader
60-Day+ Personal Loan Delinquency Rate and
Average Personal Loan Debt per Borrower |
Q4 2009 |
Q4 2010 |
Q4 2011 |
Q4 2012 |
Q4 2013 |
Q4 2014 |
Q4 2015 |
Q4 2016 |
Q4 2017* |
Q4 2018* |
|
4.98% |
|
|
4.78% |
|
|
4.20% |
|
|
3.93% |
|
|
4.01% |
|
|
3.73% |
|
|
3.62% |
|
|
3.83% |
|
|
3.37% |
|
|
3.36% |
|
$6,650 |
|
$6,138 |
|
$5,895 |
|
$5,904 |
|
$6,247 |
|
$6,741 |
|
$7,360 |
|
$7,640 |
|
$8,066 |
|
$8,461 |
|
*Q4 2017 and Q4 2018 include projections |
TransUnion’s ForecastTransUnion’s forecasts are
based on various economic assumptions, such as gross domestic
product, home prices, personal disposable income and unemployment
rates. The forecasts could change if there are unanticipated shocks
to the economy, such as if home prices unexpectedly fall.
Better-than-expected improvements in the economy, such as
precipitous drops in unemployment, could also impact these
forecasts.
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http://www.transunion.com/business
Contact |
David Blumberg
TransUnion |
E-mail |
david.blumberg@transunion.com |
Telephone |
312-972-6646 |
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