Despite a challenging macroeconomic environment, TransUnion’s new Consumer Pulse Study found more than half (52%) of Americans were optimistic about their financial futures over the next 12 months. And the youngest generations — Millennials (64%) and Gen Z (61%) — were most optimistic.
That's despite the fact 82% of consumers believed the US is currently in a recession — or will be by the end of 2023.
TransUnion's 2023 Consumer Credit Forecast projects delinquency rates for credit card and personal loans will rise to levels not seen since 2010. At the same time, demand for most lending products will remain high relative to pre-pandemic levels — with the number of consumers securing auto and home equity loans increasing on an annual basis. Let's dive into the numbers to learn more.
Trend 1: Credit card originations to stay above pre-pandemic levels — and delinquency rates to rise
The credit card industry has seen strong growth in originations since Q2 2021. Thanks to tighter lender underwriting standards in anticipation of a potential economic downturn, card originations are expected to moderate over the course of 2023:
- We expect 80.9 million new credit card originations in 2023, down 7.6% from an expected 87.5 million in 2022
- However, that's still much higher than recent years: There were 76.8 million in 2021, 50.5 million in 2020 and 66.8 million in 2019
“In the midst of an unsettled economic environment, lenders are likely to scrutinize origination strategies and their expected results, thus creating in a slowdown in originations over the course of 2023," says Paul Siegfried, Senior Vice President and Credit Card Business Leader at TransUnion. "However, it’s important to put the current credit card marketplace in perspective. When taking 2022 out of the equation, more consumers will gain access to credit cards in 2023 than in any other year in the last decade.”
Card balances and delinquencies rose in 2022 — a trend TransUnion expects to continue in 2023 as consumers use cards to help negotiate high inflation and rising interest rates:
- We expect balances to rise to $934.5 billion by the end of 2023, an increase of 1.8% year over year
- Card delinquency is expected to increase to 2.6% through the end of 2023, which would represent a 20.3% increase year over year
Trend 2: Record growth in personal loan originations will cool to normal levels
The first half of 2022 saw record growth in personal loan originations, but inflation, rising unemployment and increasing interest rates are driving a pullback we think will continue into 2023.
- Unsecured personal loan originations are forecast at 19.3 million for 2023. That's down approximately 13% year over year, and close to the levels of 2019 and 2021.
- Serious delinquency rates rose steadily in 2022, and we expect that to continue into 2023. Consumers 60+ days past due on their accounts are forecast to increase to 4.30% in 2023, up from 4.10% for 2022.
"Unsecured personal growth originations are likely to stay below 2022 levels as lenders reevaluate their risk appetites in this climate of economic volatility. Lenders are likely to turn to additional insights, such as trended credit data in determining which loans to approve. As delinquencies rise, lenders will continue to tighten their buy-boxes, driving lower unsecured personal loan originations in 2023," says Liz Pagel, Senior Vice President and Consumer Lending Business Leader at TransUnion. But, she adds, "Net-net, we still anticipate consumers to have a healthy appetite for personal loans.”
Trend 3: Home equity originations should grow in 2023
We expect high interest rates to dampen mortgage purchase originations in 2023.
- Originations should be just over 4 million in 2023
- That's close to half of recent year totals (7.4 million in 2020; 8.0 million in 2021)
- Refinance originations will also be at a historical low at just over 1 million for the year
Tappable home equity is expected to decrease as a result of a decline in home prices in conjunction with falling balances due to pay-down rates — but the amount of available equity homeowners have in their homes will remain sizable.
"HELOCs and HELOANs are a great way to access available home equity without refinancing at a higher interest rate," says Joe Mellman, Senior Vice President and Mortgage Business Leader at TransUnion. "Currently, homeowners have over $600 billion in non-mortgage debt, and this is anticipated to increase in 2023 as inflation takes its toll on consumer wallets."
That's why we expect home equity originations to increase by 24% in 2023. Delinquencies as measured by 60+ days past due account level are expected to increase to 1.4% by the end of 2023 — but that's still well below pre-pandemic levels. However, if there’s a deeper correction in home prices and unemployment rises, mortgage delinquencies could increase.
Trend 4: Auto delinquencies will rise in Q4 2022, then stabilize in 2023
Late 2022 and early 2023 may see continued bumps in the auto market, but things may start looking up late next year. “Consumer demand for vehicles is likely to remain strong, and an expected improvement in inventory shortfalls should drive an increase in auto originations over the course of the year,” says Satyan Merchant, Senior Vice President and Auto Business Leader at TransUnion.
- Auto originations should decrease 5.9% through the end of 2022, then rebound in the second half of 2023, with growth of at least 6% expected across all risk tiers in Q4
- We expect auto delinquency hit its peak in Q4 2022; the percentage of borrowers 60+ days past due is expected to climb to 1.95% in Q4 2022 but should finish 2023 at 1.90%
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