2017 predictions: Consumer balance and delinquency rates

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Each quarter our experts study mortgage, auto, credit card and personal loan data to uncover trends and insights that highlight the overarching themes in the consumer credit market. At the end of the year, we analyze that data and forecast average consumer balances and delinquency rates to help businesses plan for the year ahead.

Before we look ahead, however, it’s important to reflect. 2016 was a robust year for the consumer credit market with increased consumer participation, balance growth and manageable low levels of delinquency. Here’s a quick summary of the consumer credit market:

Positive dynamics
Positive economic fundamentals
Greater access to credit
Robust growth in aggregate balances
Well-managed and low levels of delinquencies

Potential Headwinds
Slightly rising trends in delinquency for card and auto market
Impact of rising interest rates
Uncertainty associated with incoming administration policies
Uncertainty associated with ongoing global conflicts

And now, our five predictions on average consumer debt and serious-delinquency rates:

1. Delinquency rates for auto loans and credit cards are likely to rise in 2017

The combination of 25-basis points rise in Dec 2016 and expected interest rate increase in 2017 along with more subprime borrowers in the consumer lending market will spur delinquency rate rises in 2017 for auto loans and credit cards.

The consumer credit markets have been functioning extremely well the last few years, but an increase in subprime lending has begun to impact delinquency levels for some industries, specifically the auto finance and credit card markets.

On the credit card front, we have seen the percent of subprime accounts reach their highest level since the end of 2010; for auto finance, this figure is now at its highest point since the conclusion of 2013.

Our forecast also takes into account an expected 50-basis point aggregate increase in the prime interest rate. We included the rate hike that occurred last month, as well as an additional 25-basis point increase in the end of next year. The combination of these elements are key drivers of the expected delinquency rate increases.

Serious Borrower-Level Delinquency Rates for Key Credit Products**

Credit Product Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016* Q4 2017* PCT Change in Last 5 Years (2012-2017)
Auto Loans 1.15% 1.23% 1.19% 1.27% 1.36% 1.40% +21.3%
Credit Cards 1.75% 1.60% 1.48% 1.59% 1.71% 1.82% +3.7%

*Projections; **Serious auto loan delinquencies are defined here as those with payments 60 or more days past. Serious credit card delinquencies are defined as those with payments 90 or more days past due.

2. The credit card balance per consumer is projected to rise throughout 2017

TransUnion expects the average balance to rise 1.87% from $5,337 in Q4 2015 to $5,437 in Q4 2016. Average balances are projected to reach $5,509 by the end of 2017.

A better employment picture and rising median household income are contributing to an anticipated increase in personal spending, and credit card balances are expected to benefit from those positive economic forces in 2017.

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 2015 Q4 2017*
2.97% 2.17% 1.90% 1.75% 1.60% 1.48% 1.59% 1.59% 1.82%
$6,043 $5,609 $5,485 $5,371 $5,324 $5,329 $5,337 $5,437 $5,509

*Q4 2016 and Q4 2017 include projections

3. Auto sales will likely still grow, but at a lower rate than experienced in recent years

Auto sales have seen a lot of growth in the past few years. Most recently in Q3 2016, there were 74.8 million auto loan accounts. Non-prime (VantageScore® 3.0 of 660 and below) accounts grew 7.5% to 25.1 million auto accounts in Q3 2016, up from 23.3 million in Q3 2015.

In 2017, the annual growth rate of new vehicle sales is expected to taper and interest rates are expected to rise. Growth in average auto balance per consumer is expected to slow down to levels last observed in 2011. The average balance is projected to grow at a 2.4% rate between year-ends 2015 and 2016, compared to the 3.1% growth rate between Q4 2014 and Q4 2015 and 4.0% growth between Q4 2013 and Q4 2014. Average auto balances are expected to reach $18,435 in Q4 2016 and $18,840 in Q4 2017.

4. For mortgage loans, delinquency rates will continue trending downward, while average debt levels are expected to rise

Mortgage delinquency rates have declined consecutively for 23 of the last 26 quarters since peaking at 7.21% in Q1 2010. The mortgage market has improved dramatically, to a point where it has normalized on a delinquency basis. From an overall consumer credit standpoint, the mortgage marketplace also stands out from other loan types, with far more prime and above borrowers as a percentage of total accounts. This improved risk distribution, coupled with rising home values, has led to a significant decline in mortgage delinquencies.

Mortgage debt levels are expected to rise nearly $4,000 from $194,875 in Q4 2016 to $198,435 in Q4 2017.

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 2015 Q4 2017*
7.16% 6.65% 6.15% 5.38% 4.31% 3.40% 2.46% 2.21% 2.11%
$190,324 $186,488 $185,594 $184,753 $187,228 $187,311 $189,914 $194,875 $198,435

*Q4 2016 and Q4 2017 include projections

5. Personal loan average consumer balance will rise, while delinquency rates will remain low

Personal loans were the fastest growing loan product in 2016. We observed double-digit growth rates across all risk tiers. In 2017, the average personal loan balance is expected to grow 3.24% from $7,729 in Q4 2016 to $7,980 in Q4 2017, the highest level since we began tracking the metric in Q3 2009.

The personal loan delinquency rate is forecasted to increase year-over-year for the first time since Q2 2014, increasing to 3.72% at the conclusion of 2017. Delinquency levels will remain lower than the average fourth quarter reading of 4.18% (2009-2015).

As additional prime and above consumers take on personal loans, the risk distribution of this market has shifted. Prime consumers typically have access to higher loan amounts, driving the average balance per consumer up to another post-recession high.

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 2015 Q4 2017*
4.98% 4.78% 4.20% 3.93% 3.93% 3.73% 3.62% 3.66% 3.72%
$6,650 $6,138 $5,895 $5,904 $6,247 $6,741 $7,360 $7,729 $7,980

*Q4 2016 and Q4 2017 include projections

So there you have our predictions for 2017 average consumer balances and delinquency rates. We hope these insights can assist you as you plan for the upcoming year.

Historically, our forecasts have been very close to the actual trends. To see our results, watch the 2017 Industry Forecast webinar on-demand. You’ll also get more in depth insights on what’s driving these forecasts and trends for each line of business.

We wish you a prosperous New Year and hope you will join us for our quarterly industry insights webinars!

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