Another year is coming to a close, and now is the ideal time for lenders to look forward to 2020 and the opportunities the new year may bring. To help lenders prepare for a successful year ahead, TransUnion has put together our annual consumer credit forecast for the auto, credit card, mortgage and personal loan markets.
In the report, we take a look back at the 2019 consumer credit market and how it performed against our 2019 forecast. We also offer our predictions for consumer debt levels, originations, delinquency rates and credit performance in 2020.
Overall the U.S. consumer credit market is set to do well in 2020, buoyed by low unemployment rates, continued growth in GDP and high consumer confidence. We project serious delinquency rates will either decline or remain about the same for auto loans, credit cards, mortgages and unsecured personal loans.
Five-Year Trend Shows Serious Consumer Delinquency Levels Continue to Remain Low**
| Credit Product | Q4 2020* | Q4 2019* | Q4 2018* | Q4 2017* | Q4 2016* |
| Auto Loans | 1.44% | 1.47% | 1.44% | 1.43% | 1.44% |
| Credit Cards | 2.01% | 1.99% | 1.94% | 1.87% | 1.79% |
| Mortgage Loans | 1.47% | 1.54% | 1.66% | 1.86% | 2.28% |
| Unsecured Personal Loans | 3.04% | 3.31% | 3.63% | 3.29% | 3.83% |
* Projections; **Serious mortgage, auto loan and personal loan deliquencies are defined here as those with payments 60 or more days past due. Serious credit card deliquencies are defined as those with payments 90 or more days past due.
Additionally, both balance and originations activity are expected to grow for most key credit products.
We recommend that you watch the recording of the 2020 Consumer Credit Forecast webinar for in-depth analysis, but here are some key takeaways from the report.
Before we jump into the forecast, let’s reflect on consumer credit trends from 2017. In 2017, we observed greater consumer access to credit, balanced with rising trends in delinquency for card and auto loans.
| Positive Dynamics | Potential Headwinds |
|---|---|
| Positive economic fundamentals | Slightly rising trends in delinquency for card and auto market |
| Greater access to credit | Impact of rising interest rates |
| Robust growth in aggregate balances | Uncertainty associated with current tax reform efforts |
| Well-managed and low levels of delinquencies | Uncertainty associated with ongoing global conflicts |
As we prepare for 2018, here are our five predictions on average consumer debt and serious delinquency rates for auto, credit card, mortgage and personal loans:
1. The consumer credit market is expected to remain strong and on a healthy trajectory in 2018
In spite of rising interest rates, the U.S. consumer lending market is poised to perform well in 2018. Although interest rates are rising and vehicle sales are slowing, expected increases in GDP, personal income, total employment and the House Price Index will fuel a strong 2018 consumer credit industry.
Looking at the delinquency rates of credit products, we forecast serious delinquency rates for unsecured personal loans will remain steady, while mortgage delinquency rates drop in another steep decline. On the other hand, we expect auto loan and credit card delinquency rates to rise slightly. In 2017, lenders were steering their portfolios to take on some risk cautiously, and we anticipate these delinquency rate increases to be well managed.
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; **Serious mortgage, auto loan and personal loan delinquencies are defined as those with payments 60 or more days past due. Serious credit card delinquencies are defined as those with payments 90 or more days past due.
2. The mortgage delinquency rate will drop to its lowest level since 2005
Rebounding housing prices, combined with a strong employment picture and increases to the labor participation rate and median household income, spell a positive outlook for the mortgage industry in 2018.
Mortgage delinquency rates have declined almost every quarter since their peak of 7.21% in Q1 2010. We forecast this trend to continue in 2018 as serious mortgage delinquency rates reach the lowest level observed since 2005.
Although rising interest rates are affecting refinancing, they are not hurting the overall mortgage market. We also anticipate HELOC loans to become a renewed focus in the mortgage industry in 2018. With more home equity and a solid footing on the job front, we forecast millions of consumers could take advantage of these lines of credit in the coming years.
60-Day+ Mortgage Delinquency Rate and Average Mortgage Debt per Borrower
| 60-Day+ Mortgage Delinquency Rate | Average Mortgage Debt per Borrower | |
|---|---|---|
| Q4 2009 | 7.16% | $190,324 |
| Q4 2010 | 6.65% | $186,488 |
| Q4 2011 | 6.15% | $185,594 |
| Q4 2012 | 5.38% | $184,753 |
| Q4 2013 | 4.31% | $187,228 |
| Q4 2014 | 3.40% | $187,311 |
| Q4 2015 | 2.46% | $189,914 |
| Q4 2016 | 2.28% | $194,415 |
| Q4 2017* | 1.83% | $200,935 |
| Q4 2018* | 1.65% | $205,534 |
*Q4 2017 and Q4 2018 include projections
3. Credit card lending will reflect the risk-reward paradigm of lending
The credit card marketplace will offer a strong example of the risk-reward paradigm of lending in 2018, as lenders provide credit cards to both the least risky and higher risk consumers. Credit card delinquency rates are slowly rising, but many lenders have the confidence to take on some risk, and subprime card accounts are still well below the account levels observed during the recession.
We forecast the average credit card balance per consumer to rise, driven by higher total employment and median household income. While we anticipate only about a 1% yearly rise, this marks the fifth consecutive annual increase as consumer confidence and GDP continue to strengthen.
90-Day+ Credit Card Loan Delinquency Rate and Average Credit Card Loan Debt per Borrower
| 90-Day+ Credit Card Loan Delinquency Rate |
Average Credit Card Loan Debt per Borrower |
|
|---|---|---|
| Q4 2009 | 2.97% | $6,043 |
| Q4 2010 | 2.17% | $5,609 |
| Q4 2011 | 1.90% | $5,485 |
| Q4 2012 | 1.75% | $5,371 |
| Q4 2013 | 1.60% | $5,324 |
| Q4 2014 | 1.48% | $5,329 |
| Q4 2015 | 1.59% | $5,337 |
| Q4 2016 | 1.79% | $5,486 |
| Q4 2017* | 1.86% | $5,626 |
| Q4 2018* | 1.96% | $5,675 |
*Q4 2017 and Q4 2018 include projections
4. Personal loan originations will skew toward above prime consumers
The volume of unsecured personal loans rebounded in 2017 and the industry has moved past the challenges of 2016. We expect this trend to continue in 2018. While FinTechs have continued to increase their share of the personal loan market, we expect banks and credit unions to place a larger emphasis on this product in 2018, driving some of the growth.
As this growth occurs, we forecast personal loan delinquency levels to remain stable from year-end 2017 to year-end 2018. With more originations skewing toward above prime consumers, we anticipate the average personal loan balance will reach nearly $8,500.
60-Day+ Personal Loan Delinquency Rate and Average Personal Loan Debt per Borrower
| 60-Day+ Personal Loan Delinquency Rate |
Average Personal Loan Debt per Borrower |
|
|---|---|---|
| Q4 2009 | 4.98% | $6,650 |
| Q4 2010 | 4.78% | $6,138 |
| Q4 2011 | 4.20% | $5,895 |
| Q4 2012 | 3.93% | $5,904 |
| Q4 2013 | 4.01% | $6,247 |
| Q4 2014 | 3.73% | $6,741 |
| Q4 2015 | 3.62% | $7,360 |
| Q4 2016 | 3.83% | $7,640 |
| Q4 2017* | 3.37% | $8,066 |
| Q4 2018* | 3.36% | $8,461 |
*Q4 2017 and Q4 2018 include projections
5. Auto balance growth will slow, but hurricanes may drive short-term demand
We anticipate many shifts in the auto loan market throughout 2018. While we expect auto balance growth to slow, we may see short-term demand in areas impacted by the hurricanes, such as Florida and Texas. We expect the decelerating growth of average balances as lenders require larger down payments to meet certain underwriting criteria, such as lower loan-to-value ratios.
The serious auto delinquency rate will continue to grow, but at a slower pace in 2018. Lenders’ shift toward prime plus and super prime auto originations will help cushion the market over the next few quarters. As in recent years, we are likely to see a bit of a roller coaster for serious delinquency rates, mostly due to seasonality. Ultimately, we expect delinquencies to conclude the year at 1.46%, slightly higher than the 1.43% we anticipate at year-end 2017.
60-Day+ Auto Loan Delinquency Rate and Average Auto Loan Debt per Borrower
| 60-Day+ Auto Loan Delinquency Rate |
Average Auto Loan Debt per Borrower |
|
|---|---|---|
| Q4 2009 | 1.59% | $14,922 |
| Q4 2010 | 1.27% | $15,031 |
| Q4 2011 | 1.11% | $15,377 |
| Q4 2012 | 1.15% | $16,061 |
| Q4 2013 | 1.23% | $16,781 |
| Q4 2014 | 1.19% | $17,456 |
| Q4 2015 | 1.27% | $18,004 |
| Q4 2016 | 1.44% | $18,391 |
| Q4 2017* | 1.43% | $18,588 |
| Q4 2018* | 1.46% | $18,694 |
*Q4 2017 and Q4 2018 include projections
As we enter 2018, we hope these consumer credit insights help guide your strategy and planning for the upcoming year. Historically, our forecasts have been very close to the actual auto, credit card, mortgage and personal loan delinquency and balance trends.
Looking for more predictions? Check out our 2018 Consumer Lending Forecast Webinar
