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Data through August 2016, recently released by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices, showed small increases in numerous default rates.
“Despite small monthly movements in consumer credit defaults, the overall default rates are stable and close to the lowest levels since shortly before the financial crisis,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Bank card default rates are more volatile and slightly higher than those tracking mortgages or auto loans. Compared to a year earlier, auto and bank card defaults rose 11 and 15 basis points, respectively; mortgage loan defaults are 16 basis points lower. The overall consumer credit picture gives little reason to be concerned about default rates.”
The report shows that composite default rate was 0.85 percent in August, up two basis points from the previous month but down 11 basis points from the year prior. Likewise, the first mortgage default rate reported 0.68 percent for August, also up two basis points from the prior month but down 16 basis points from the year prior. For the second mortgage default rate, the report shows it up eight basis points from the previous month from 0.44 percent to 0.52 percent in August but down five basis point from August of 2015.
Data for the five major cities showed mixed results in August, according to the report, with three cities showing higher default rates month over month. New York showed a rate of 0.91 percent for August, up 14 basis points from 0.77 percent in July. Dallas had a default rate five basis points up from the prior month resulting in 0.74 percent in August. Chicago was the third city this month to see its default rate increase, specifically up four basis points from July to 0.93 percent in August. Los Angeles’ default rate of 0.60 percent was a decrease of three basis points from July and Miami also showed a decrease of 16 basis points at 1.21 percent. This was the first decrease for Miami since February 2016.
“Related data published by the Federal Reserve show that the growth in consumer and household debt is currently about 4.4 percent per year, increasing about two percentage points faster than nominal GDP growth,” says Blitzer. “Consumer credit – bank cards and auto loans – grew before, during, and after the recent recession and is currently at an all-time high. Mortgage debt peaked in the first quarter of 2008 and reached its most recent low point in the first quarter of 2015. It is now up 2.1 percent from the low. Barring a repeat of the recent and severe recession, both consumer credit and mortgage debt outstanding are expected to continue growing at, or faster than, the pace of nominal GDP growth.”
