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Consumer Credit Origination, Balance and Delinquency Trends: Q2 2019

Matt Komos
Blog Post08/23/2019
Business Research
Consumer Credit Origination, Balance and Delinquency Trends: Q2 2019

Gen Z, those individuals born in 1995 or after, increasingly took part in the consumer credit market during the first half of 2019. TransUnion’s Q2 2019 Industry Insights Report found that growth is coming from the entire Gen Z demographic who are 18 years or older — not just those who became credit eligible for the first time.

“Both the newest and oldest members of the credit eligible Gen Z generation are beginning to enter the credit market for the very first time,” said Matt Komos, vice president of research and consulting at TransUnion. “The rapid growth in Gen Z credit activity is occurring despite many of these individuals having grown up during the Great Recession. Though the recession itself lasted less than two years, its impact was felt for several years afterward. As we see more members of this group come of age, we naturally expect continued growth in credit activity by Gen Z, which we will monitor closely to compare to the behaviors of previous generations.”

Credit card is the most popular product among Gen Z with 55% of such consumers carrying a balance, though they still only constitute 5% of the U.S. population carrying such debt. While mortgage had the largest year-over-year growth rate spike (112%), it is still the credit product Gen Z is least likely to have with only 0.5% of mortgages held by members of this generation.

Consumer Credit Trends in the Credit Card Sector: Q2 2019

Total credit lines reached a high of $3.83 trillion in Q2 2019, a 10.5% increase from Q2 2018 and the fastest year-over-year rate of growth in the post-recession era. Key takeaways include:

  • Though double-digit increases were seen across the majority of risk tiers, it was highest in the mid-tiers, with near prime seeing 18.2% growth year-over-year and prime rising by 16.8%. Total balance growth increased 5.3% year-over-year in Q2 2019, the 25th straight quarter of such growth, with average consumer balances reaching $5,645
  • The number of consumers carrying a balance peaked to 148 million, with 7.7 million belonging to Gen Z, the highest share compared to other credit products
  • Though the consumer serious delinquency rate (90+ DPD) rose to 1.71%, delinquencies remain well below the mark observed around the time of the Great Recession
Credit Card Lending Metric Q2 2019 Q2 2018 Q2 2017 Q2 2016
Number of Credit Cards 437.1 million 420.0 million 409.8 million 391.0 million
Borrower-Level Delinquency Rate (90+ DPD) 1.71% 1.53% 1.46% 1.29%
Average Debt Per Borrower $5,645 $5,543 $5,422 $5,247
Prior Quarter Originations* 15.3 million 14.5 million 15.0 million 15.3 million
Average New Account Credit Lines* $5,773 $5,649 $5,817 $5,466

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Consumer Credit Trends in the Personal Loan Sector: Q2 2019

Serious personal loan delinquency rates (60+ DPD) declined to 3.12% in Q2 2019, down nine basis points from one year earlier, partially a result of origination growth shifting to above prime consumers. This shift also drove the average new account balance to a record high of $6,790 given the higher origination amounts these lower risk consumers demand.

  • Total balances grew by 18.4% year-over-year to $148.4 billion in Q2 2019, with total balances now 54% higher than they were just three years ago
  • In Q1 2019, personal loan originations grew by 8.4% year-over-year — a much slower rate compared to the 24.5% growth experienced over the same quarter last year
  • The number of consumers with a personal loan reached 19.6 million in Q2 2019

What’s driving these changes in the personal loan market?

The slower, but still significant, personal loan growth that we have seen over the past two quarters is a good indicator of what to expect in the market through the end of 2019. Growth continues to favor consumers in the lower risk tiers, which is reflected in lower delinquencies. As this market matures and the number of new lender entrants subsides, growth is not expected to return to levels over 25% as we saw in recent years. However, personal loan volumes across all risk tiers will continue to grow at a healthy level given consumer demand and the focus on the market by both traditional and FinTech lenders.

Consumer Credit Trends in the Auto Sector: Q2 2019

The total number of auto loans rose by 1.8 million in the last year, though year-over-year auto origination growth turned negative for the first time in five quarters. Other takeaways from the report:

  • Despite overall declines in originations, growth occurred predominately in a straddle pattern and was focused to the super prime risk tier (+1.0%) and to subprime (+2.1%)
  • Serious delinquency rates (60+ DPD) stood at 1.23% in Q2 2019, just one basis point higher than what was observed in Q2 2018 and the same level as Q2 2017
  • As Gen Z grows older, 1.3 million consumers with an auto balance were added to this category in Q2 2019, signaling more unit growth than Millennials and Gen X combined

What’s driving these changes in the auto market?

Auto affordability continues to pose a challenge for consumers with factors such as increased new vehicle pricing and plateauing terms contributing toward more expensive monthly payments. The weakening demand has resulted in a slowdown of origination growth and an overall softening in the market. Industry forecasts indicate new vehicle sales will fall below 17 million this year for the first time since 2014. Despite this trend, performance remains strong as delinquencies have remained steady year–over-year.

Consumer Credit Trends in the Mortgage Sector: Q2 2019

While performance has stayed strong, originations have remained conservative with 1.4 million in Q1 2019. This is relatively low compared to the Q1 origination numbers over the past four years. Here are other key findings about mortgages from the Q2 2019 Industry Insights Report:

  • Affordability continues to be a challenge for consumers looking to enter the housing market as year-over-year originations decreased 8.2%
  • While most risk tiers saw negative growth, subprime was the only risk tier to experience an increase this quarter (+0.8%)
  • Serious delinquency rates for mortgage loans (60+ DPD) continued to decline, concluding the first half of 2019 at 1.37%

What’s driving these changes in the mortgage market?

The housing market can have high barriers to entry for first-time home buyers as low inventory and rising home prices continue to make affordability an issue. However, with interest rates recently dropping in Q2, we expect originations to grow through the end of the year, largely driven by refinance volume. Overall the market is in a healthy position as consumer level delinquencies reached a historic low this past quarter.

We continue to monitor the credit market for any changes, and we will likely have a better understanding of the full impact of the federal government shutdown next quarter. Financial institutions can use these consumer credit trends in originations, balances and delinquencies to guide their strategies. To hear more about these trends, view our TransUnion Q2 2019 Industry Insights webinar.

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