Delinquencies on subprime car loans and leases hit a record in February, based on Equifax’s tracking that goes back to 2007. Consumers with low credit scores are falling behind on payments – at least 60 days late – for car loans, personal loans and credit cards, a sign that the healthiest consumer lending environment on record in the U.S. is coming to an end. March was the eighth month in a row that delinquencies rose, nearing pandemic levels.
During the pandemic, stimulus payments and child tax credits boosted many families’ financial health, but now many of those benefits have run out. Subprime borrowers are being hit hard. Inflation, running near its highest point in four decades, is also forcing many households to choose between paying for essentials and paying their monthly loans.
Lenders have kept their standards for mortgage loans relatively strict. But last year, many lenders embraced subprime customers for other types of loans, comforted by low unemployment and fueled by an eagerness to rebuild loan balances that took a hit early in the pandemic. Subprime lending hit records last year when measured by the total dollar amount of personal loans originated and spending limits on new general purpose credit cards, according to Equifax.
Some 11 % of general purpose credit cards held by consumers with credit scores below 620 were at least 60 days behind on payments in March, compared with 9.8 % a year prior. Personal loans and lines of credit delinquencies came in at 11.3 %, up from 10.4 % a year earlier. Car loan delinquencies hit a record in February, with 8.8 % of subprime accounts behind at least 60 days.
Capital One CEO Richard Fairbank said on the bank’s last earnings call: “It would be an unnatural thing for credit to stay where it is. We would expect this is an across -the – board kind of return toward normal over time.”
Reported by AnnaMaria Andriotis, Wall Street Journal, May 20, 2022.
Last week the National Association of Realtors reported that the median home price in April jumped 14.8 % from a year ago to $391, 200. NAR says this is an all time high according to data going back to 1999. But sales slowed for the third consecutive month in April as mortgage rates surged, driving up borrowing costs for would-be-buyers as home prices soared to new highs. Sales fell 5.9 % from April last year.
“Without a doubt, rising mortgage rates, rising prices are hurting affordability, but we should not discount that we’re still lacking inventory,” said Lawrence Yun, NAR’s Chief Economist.
In April, the weekly average rate on a 30-year fixed-rate home loan climbed above 5 % for the first time in more than a decade, crimping would-be homeowners’ purchasing power at the outset of the spring homebuying season, traditionally the busiest period for home sales. With inflation at a four-decade high, rising mortgage rates, elevated home prices and a tight supply of homes for sale, homeownership has become less attainable, especially for first-time home buyers.
Take a look at your note. If you have a low interest rate and have been thinking about selling, consider this. the longer we experience this inflationary climate, the less valuable your note becomes. A 3 % or 4 % interest rate in a 7-8 % inflation climate does not work well. So, your note is probably worth more today that it will be 1 year from now.
Call me to get some pricing and you can decide if it is in your best interest to sell.
