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Rising Default Rates Not Indicative of Economy’s Health

Default Notice BHDefault rates are up for mortgage loans nationwide along with other types of consumer credit such as bank cards and auto loans, according to the most recent S&P Dow Jones Indices released by S&P Global and Experian. Despite the increases in default rates, their levels still point to an economy on the mend, according to one analyst.

According to the Indices, the country’s composite default rate went up two basis points in December 2016, while the mortgage defaults rose one basis point, bank card rate jumped 14 points, and auto loan defaults three points.

Four of the five major cities monitored by the Indices also saw default rates jump for the month. Miami default rates rose nine basis points, Chicago and Los Angeles rose two, and Dallas rose one. New York City was the only city to see a decrease, with the default rate dropping four basis points month over month.

Miami’s default rate, which is at a 30-month high of 1.53 percent, is likely due to the high number of first-time buyer mortgage defaults seen in the city.

“Among the five cities reported on each month, Miami has a larger and increasing first mortgage foreclosure rate,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Home prices in Miami, as in most cities, have recovered from the financial crisis. However, Miami home prices, as measured by the S&P CoreLogic Case-Shiller Home Price Index, as of October 2016 were 22 percent below their December 2006 peak, while nationally, home prices have recently surpassed the pre-crisis peak set in July 2006. Florida also lags national trends in other measures—it is among the five states with the most foreclosures in 2016.”

“National average consumer credit default rates continue at low levels in an improving economy,” Blitzer continued. “Auto and light truck sales were up each month since August as automobile consumer credit defaults held steady. Bank card sector defaults ticked up slightly in the last two months, reversing five months of flat to down reports. This may reflect rising retail since the spring and larger consumer credit extensions in October and November.”

Mortgage default rates, though slightly up, “are also stable,” Blitzer said. However, that could change further into 2017.

“This favorable picture is likely to be tested by rising interest rates,” he said.

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About Author: Aly J. Yale

Aly J. Yale is a freelance writer and editor based in Fort Worth, Texas. She has worked for various newspapers, magazines, and publications across the nation, including The Dallas Morning News and Addison Magazine. She has also worked with both the Five Star Institute and REO Red Book, as well as various other mortgage industry clients on content strategy, blogging, marketing, and more.

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