2018 Predictions: Consumer Credit, Balance and Delinquency Rates

Matt Komos
Blog Post12/20/2017

A new year represents an opportunity to review, reflect and reprioritize. For lenders, this means analyzing consumer credit market performance and understanding what consumer credit trends to anticipate in the coming year.

As lenders prepare for 2018, we shared our annual consumer credit forecast for the auto, credit card, mortgage and personal loan markets in a recent webinar. This forecast considers various economic factors – such as gross domestic product, home prices, personal disposable income and unemployment rates – to predict consumer debt and serious delinquency rates.

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 DynamicsPotential 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 ProductQ4 2013Q4 2014Q4 2015Q4 2016Q4 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 RateAverage 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

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