In 2018 the Consumer Credit Market is Predicted to Stay Strong Even though Rates are Increasing
TransUnion predicts mortgage loan delinquency rate could hit the lowest level since 2005
Even with increasing interest levels, the U.S. consumer credit market is positioned to do well in 2018, with delinquencies that are well-managed and extended broad access to credit across a variety of financial products. TransUnion’s (NYSE: TRU) consumer credit forecast in 2018 discovered that anticipated raises to GDP, individual earnings, overall employment along with the Housing Price Index, among other causes, are going to override possible disadvantages like raising interest rates and decreasing automobile sales.
Matt Komos, VP of research and consulting at TransUnion stated that from the perspective of credit performance, mortgage loan delinquencies are the major headline. Problematic mortgage delinquency rates are projected to decrease materially in the coming year, achieving rates not experienced since 2005 the time TransUnion started keeping track of these metrics. The driving force behind this is robust employment rates and increasing house prices. Komos went on to say that delinquencies on unsecured personal loans will remain stable and be significantly lower compared to rates 5 years earlier. There is an expectation for an increase in credit card and auto loan delinquency rates, but these delinquencies are not unanticipated as loan companies still push their respective portfolios in a manner that indicates they will continue to carefully take on a certain amount of risk.
Komos added that even with the anticipated interest rate increases, the prime rate is still historically low and he believed that the rates will remain low and consumers will be able to manage at this level. The anticipated balance increase spanning all products is an indication of healthy consumer sentiment instead of a signal that consumers are unable to deal with their commitments. Together with the anticipated robust economy, the consumer credit market is expected to stay 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; **Major home loan, auto loan and personal loan delinquencies are characterized here as payments over 60 days in arrears. Serious credit card delinquencies are considered as payments over 90 days in arrears.
To learn more about the TransUnion forecast for 2018 and to register for the webinar that will give detailed projections, please go to www.transunioninsights.com/IIR. For a direct link to the webinar on the 2018 consumer credit forecast click here.
A Closer Look at the Mortgage Forecast
Three Trends for 2018
- Delinquencies reaching 2005 levels.While residential prices increase and overall employment numbers get better, the serious mortgage delinquency rate (60+ DPD) are forecasted to fall to 1.65% at the conclusion of 2018, the lowest level seen since 2005 (when TransUnion started monitoring this figure), down in Q3 2017 from an interest rate of 1.91%. Various other factors affecting reduced mortgage delinquency rates include improvements in the labor participation rate, median household income, together with levels in home equity. Delinquency rates for a Consumer-level mortgage have dropped virtually every quarter from Q1 2010 when the rate peaked at 7.21% when there were mortgage accounts in excess of 60.1 million. From that time, the lowest total number of accounts was in Q4 of 2016 when the number was 52.0 million. There are 52.7 million accounts today, which have been stable over the previous 3 quarters, and this means that just as many accounts are being paid off as being opened.
- Increasing rates and refinancing.TransUnion believes that interest rates are expected to rise in 2018 and there is going to be a sustained reduction in the share of refinanced mortgage loans as a portion of every mortgage. The refinancing rates are expected to fall from 35% in 2017 down to 28% in 2018.
- Return of HELOCs.Rising interest rates will probably inhibit refinancing activity and with increasing house prices, TransUnion is anticipating that more homeowners will tap into the equity in their home. About 1.6 million HELOC originations are expected in 2018 as per TransUnion and by 2022 that total is expected to be 10 million. Compared to the previous 5-year timeframe, this is a stark contrast. At that time, less than 50% of those numbers were originated – from 2012 to 2016 4.8 million HELOCs were opened. The 3 major uses for these new HELOCs according to TransUnion might be: 1) consolidating debt to a lower rate of interest; 2) financing a major expense like home improvement; 3) refinancing a current HELOC or Home equity Loan.
Instant Analysis
- A very low level of risk in the mortgage sector is expected to extend into 2018 due to the increasing house prices, stable underwriting requirements as well as a strong economy. Going into the New Year, housing demands are anticipated to stay strong. The ongoing strength will depend on the number of people buying once they are faced with a reduced level of entry-level housing, increasing interest rates along with costly “move up” alternatives. A number of current homeowners, by now having refinanced into a low-interest rate mortgage, might not be willing or not able to ‘move up’ as a result of how costly housing is now. Due to this decreased mobility, there is a reduced supply of homes at the entry-level. Furthermore, the effect of the current tax reform is creating uncertainty in the market. A possible positive outcome might be felt in HELOC lending because more homeowners choose to improve their current home compared to moving into a new house. Even though HELOCs were on the back burner for the previous 5 years along with historic highs in home equity levels, there might be a resurgence in HELOC in the coming 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
