New data has found that the default levels for bank cards, auto loans and first mortgages have reached their lowest levels of 2018 within the past three months.
The S&P/Experian Consumer Credit Default Composite Index shows that the composite rate rose one basis point from last month to 0.83 percent.
The bank card default rate remained stable at 3.09 percent, while the auto loan default rate increased one basis point to 0.93 percent. The first mortgage default rate was also one basis point higher at 0.64 percent. This means that for November 2018, all loan types showed a default rate within one basis point of the prior month.
"Consumer credit default rates across all sectors are stable at low levels," said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, in a press release. "Two factors supporting the favorable picture are gradual wage increases of about a 4 percent annual rate, combined with inflation at 2 percent. Growth in retail sales at 2.5 percent [annually] is not putting upward pressure on bank card defaults, while flat to lower auto sales have little impact on auto loan defaults. Despite home prices rising faster than inflation or wages, mortgage defaults remain steady while home sales drop.”
"Looking ahead, stable default rates will depend on personal incomes and interest rates,” he added. “Rising interest rates — not just the fed funds rate — are being noticed.
Credit card loan rates topped 14 percent in the third quarter, up more than a percentage point from the 2017 third quarter. Thirty-year fixed-rate mortgages are approaching 5 percent, up a full percentage point in the past year. The rate for a four-year auto loan is 5 percent after a small increase of a quarter-point over 12 months. As long as wages outpace inflation and interest rates, the currently low ratio of consumer debt service-to-income should continue."
As for specific locations, the data showed that the rate for Miami increased seven basis points to 1.52 percent, while the rate for Dallas went up five basis points to 0.82 percent. Two metropolitan statistical areas (MSAs) showed lower default rates: Los Angeles fell six basis points to 0.50 percent, and New York rates declined one basis point to 0.83 percent.