At the end of the year, lenders have an opportunity to review their portfolios, consider economic indicators, and understand changes in consumer credit. To help lenders prepare for 2019, we shared our annual consumer credit forecast for the auto, credit card, mortgage and personal loan markets in a recent webinar.
The 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. Partly due to the strong performance of these economic indicators, we expect originations and consumer balances to increase for most credit products.
Looking at delinquency rates, we forecast delinquency rates to remain at either low or ‘normal’ levels as lenders have confidence to add slightly more risk to their portfolios. We anticipate lenders will continue to manage risk exposure through loan amount and line management strategies in 2019.
Serious Borrower-Level Delinquency Rates**
10 Years Ago
|Q4 2016||Q4 2017||Q4 2018*||Q4 2019*|
|Unsecured Personal Loans||4.78%||3.83%||3.29%||3.50%||3.39%|
*Projections; **Serious mortgage, auto loan and personal loan delinquencies are defined here 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.
As we prepare for 2019, here are our five predictions for auto, credit card, mortgage and personal loans:
1. The percent of loans originated to subprime borrowers expected to mostly rise
Since 2017, lenders have deliberately offered more credit to subprime borrowers. We expect this trend to continue in 2019, but an increase in subprime borrowers should not be worrisome at this time. The percentage of subprime borrowers originating loans remains far below the onset of the last recession.
From a consumer perspective, subprime and near prime borrowers accessing new credit will now have more opportunity to showcase that they can responsibly manage their payments.
Percent of Loans Originated to Subprime Borrowers for Full Year*
|Unsecured Personal Loans||35.4%||34.5%||33.5%||39.1%|
*Projections for full year 2018 and 2019.
2. There’s room for growth in personal loans in 2019
The emergence of large personal loan lenders – and an increased focus by banks and credit unions on offering personal loan products – will keep growth steady. Total personal loan balances are expected to reach an all-time high of 156.3 billion by the end of 2019. We anticipate origination levels to remain healthy across all risk tiers.
Even with growth expected in the subprime risk tier, overall serious delinquency rates are expected to drop for personal loans to finish next year at 3.39%. This is primarily due to maintaining a healthy mix of prime consumers on the books as lenders extend credit to subprime consumers concurrently.
3. Affordability may impact the auto industry
The auto finance market continues to show signs of health and growth, but there are factors that may impact auto affordability in the coming year – the potential of rising tariffs, interest rates and fuel prices. Despite these potential challenges, we believe other macroeconomic factors such as low unemployment and an increase in GDP will continue to drive auto origination growth while keeping the average delinquency rate relatively low.
The number of auto loan originations is expected to significantly increase compared to recent years. This growth will likely come from both ends of the risk spectrum, but as the growth continues, the serious delinquency rate is anticipated to remain muted.
4. Home equity increases could be a boon for consumers
Mortgage originations have declined the past several quarters, a trend that is expected to continue into 2019. While overall originations will decline, increases in home prices are resulting in record levels of home equity, which provide homeowners more opportunities to tap into low APR home equity products. In particular, this may appeal to consumers who decide to pay off higher interest rate products or those who opt to invest in improving their existing home if they find it difficult to afford a new ‘move up’ house.
Average mortgage balances will continue to trend upward in 2019, largely driven by increased prices for newly purchased homes, a drop in the refi share, and a potential shift in purchase mix. Mortgage delinquency rates are forecasted to continue their downward trend, continuing a consistent downward year-over-year trend every quarter since TransUnion started tracking these metrics in 2010.
5. More near prime consumers will carry a credit card
More consumers than ever before are carrying a credit card as card issuers provide greater financial inclusion. The composition of bankcard origination growth is expected to shift as near prime consumers increase their origination share in 2019. We expect the percent of non-prime originations to decrease 2.4% as the composition of new accounts changes. The prime segment will see a resurgence in origination growth in the coming year, indicating lender’s desire for credit quality in their portfolios as delinquency continues to increase, albeit at a slower pace.
Total credit card balances are expected to finish 2019 at $840 billion, rising 4% from year-end 2018. While delinquency levels are rising, they are expected to be at or near the ‘normal’ level.
As we enter 2019, we hope these consumer credit insights help to guide your strategies 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.