Consumer Credit Default Rates Reach New Lows

Data through May 2015, released recently by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices, continued its downward trend in default rates. Historical lows are reported for four of the five national indices. The composite index posted its second consecutive historical low of 0.88 percent in May, a decrease of nine basis points. The first mortgage default rate reported a historical low, down nine basis points to 0.74 percent. The second mortgage default rate also posted a second consecutive historical low of 0.42 percent, down one basis point from the previous month. The auto loan default rate reported a historical low of 0.86 percent, a decrease of eight basis points. The bank card default rate reported its first decrease since January 2015 with a rate of 2.98 percent, a decrease of 20 basis points, its largest reported decrease since October 2013.

Four of the five major cities also continued their downward trend, reporting negative month-over-month default rate results in May. Dallas led the way, reporting a historical low of 0.70 percent, down 20 basis points from the previous month. New York posted its second consecutive decrease, reporting a historical low of 0.95 percent, a decrease of 15 basis points. Miami also reported its second consecutive decrease, down three basis points to a reported rate of 1.17 percent. Chicago reported its third consecutive decrease, posting a default rate of 1.00 percent, down five basis points from the previous month. Los Angeles reported the only rate increase, an increase of five basis points to 0.95 percent, its third consecutive monthly increase.

“Consumer credit default rates are below pre-crisis levels, at new lows and continue to drift down,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “These low levels should not come as a surprise: interest rates haven’t turned up, consumer debt service as a proportion of household income is close to its record low, and the Federal Reserve reported that consumer wealth was at a peak in the first quarter of 2015. Nor should one assume that debt levels and defaults are low because no one is spending; on the contrary, May light vehicle sales were the highest since July 2005 and retail sales jumped. The economy looks good, consumers are spending and credit usage is rising. The combination of low debt service and economic expansion should ease worries about the fallout some fear when the Federal Reserve boosts interest rates.

“Two of the five cities – New York and Dallas – reported their lowest mortgage default rates since the series started in April 2004; the other three cities reported post-recession lows. During the housing collapse, Miami was one of the hardest hit cities in the country; Los Angeles also experienced a sharp rise in defaults and foreclosures. These figures are another indication that housing is recovering. Moreover, other data on financial difficulties confirm that foreclosures are declining and consumers’ capability and willingness to borrow are improving.”

For more information, visit www.spdji.com.

Reprinted with permission from RISMedia. ©2015. All rights reserved.

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