According to Globe News Wire, key factors would lead to an increase in US consumer credit in 2019. Among them are reduced unemployment and increasing disposable income. The high performance of these economic markers is expected to cause an increase in consumer balances for credit products. On the other hand, delinquency rates are expected to fall.
Solid economic factors have kept the credit consumer market afloat in 2018 and will continue to do the same in 2019. The demand for personal and car loans will remain high. Lenders should expect to increase their business by providing realistic loans to creditworthy borrowers.
The Credit Products Available to Consumers include;
- Mortgages
Since the financial crisis in 2008, the pain of losing their homes is still fresh in the minds of homeowners. This most likely affects the decisions made by potential buyers to acquire a home. Lenders are also not eager to provide home loans. 65% of homeowners that lost their homes have since not purchased another one.
Home prices have steadily risen over the past few years by 48% and yet incomes have only made it to 14%. People now stay in their home longer than before partly due to their low interest rates. It wouldn’t make sense to purchase one with high rates.
Twenty nineteen is likely to be a difficult year for buyers and sellers in the real estate market. Buying a home is expected to be more expensive than 2018 by 8% per month.
Mortgage rates are expected to increase 5.5% by the end of 2019 and thus the growth of home price will slow down. Home sellers will take longer to make sales.
Thirty-year mortgages now have high rates to a tune of 4.9% the highest it’s been in the past seven years according to Freddie Mac. A potential economic crisis may cause a dip in affluent markets.
Generational trends are also affecting the real estate market such that millennials are not in a hurry to own homes and are instead saving up for a large down payment.
- Credit Cards
The average American owns more than one credit card. It continues to be the most preferred method credit for making purchases. According to the American Bankers Association, 44% of card users have a balance on their cards every month.
Trans Union reported that the credit limit for creditworthy consumers was USD 33,371 in early 2017. In early 2018, 8% of credit card balances were late by 90 days. Delinquencies haven’t increased since then.
The interest rates on credit cards keep increasing. They continue to be used widely especially by consumers that earn more than $ 75,000. However, it may become unsustainable eventually.
Interestingly, millennials are not keen on using this method. As a result, debit card companies have come out to give an alternative with attractive offers. As millennials get older, prepaid cards and debit cards will become more popular.
At the moment, for some consumers, the popularity of credit cards is fueled by the need to acquire future car and home loans with a good score.
- Car loans
At the end of 2016, the US recorded $ 1.2 trillion car loan debt. It is interesting to note that while car prices and rates on loans increased, the incomes only increased slightly.
Americans easily sign to finance a vehicle however costly. In 2017, the average amount for a new car was USD 31,000, making the monthly installment USD 515. The interest rates on auto loans rose to an all-time high of 5.2% in the past eight years.
Since 2010, the car loan percentage keeps increasing. By 2017, prime and super-prime consumers increased while subprime originations reduced.
- Personal loans
This is the most popular form of credit and it keeps growing. The average loan amount for consumers in 2016 was between $ 20,000 and $ 28,000.
Personal loan debt had increased steadily since 2013. It increased by 11.4% from the second quarter of 2017 to the same quarter this year. It reached an astonishing $273 billion. This increment was bigger than that of any other form of credit.
Originations rose to USD 4.6 million exceeding the previous high of 4.1%.
The low rates of unemployment and conducive environment are causing the increase of this debt.
Online lenders have also played a part in increasing personal loan debt especially because their interest rates are much lower making them a popular choice. Also, after the recession, only 26% of people who took part in a poll said they were confident in banks. Online lenders took advantage of this for the borrowers.
TransUnion, an American consumer credit reporting agency, provides the following forecast for the US credit consumer market 2019;
- Potential Growth of Personal Loans
Personal loans are expected to grow, with total balances increasing by 20% to a staggering 156.3 billion by year-end. Subprime originations are expected to rise with more lenders taking part in the personal loan market.
Banks are expected to focus more on providing personal loans, thus sustaining growth. By the end of 2019, delinquency rates are expected to fall to 3.39% following a reduction by 11 basis points. This is because lenders would provide services to both prime and subprime consumers.
Analysis
TransUnion’s Vice President, Jason Laky states that personal loans are still a major factor in an American’s financial portfolio. Consumers with a personal loan will grow and increase in 2019 beyond what it has been the past year.
- High Rates May Affect Auto Industry
Increasing tariffs would potentially affect the prices of vehicles and the consumers’ ability to purchase them. High interest rates and fuel prices would also affect the auto industry. In spite of this, TransUnion is confident that the low unemployment rates and increased disposable income would increase origination and keep delinquency low.
Car loan origination has been steady over recent years with 28.3 million in 2016 and 27.5 million in 2017. 2018 is expected to close at 28.5 million and grow to 29.4 million in 2019.
Analysis
TransUnion’s Senior Vice President, Brian Landau analyses that the market for auto finance is healthy and growing. Consumers who can’t afford new vehicles would have the options of auto refinance and vehicle sales.
- Expensive Homes and Increased Home Equity
High interest rates and home prices have led to lower mortgage originations in the past years. This trend is expected to continue in 2019. Balances will keep increasing because of high prices for new homes. Delinquencies will fall from 1.62% in 2018 to 1.45% in 2019 as has been the case since 2010.
Analysis
Joe Mellman, Senior Vice President and TransUnion’s Mortgage Line of Business Leader, says that much as mortgage originations are expected to be low, increasing home prices would lead to homeowners having more opportunities for low APR home equity options. Consumers opting to improve their homes will benefit.
- More Consumers to Carry Credit Cards
More consumers prefer to use credit cards. Credit card balances will increase to 4% and end 2019 with $840 billion. The origination share of near prime consumers will increase from 18.3% to 19.1%. Delinquency levels are increasing and will come up to 2%.
Analysis
Generally, credit card originations are not expected to change much. Non-prime originations are expected to decrease 2.4%. A comeback of prime originations is expected in 2019, showing lenders’ preference for quality as delinquency increases.
Conclusion
In October 2018, consumer credit increased by USD 25.4 billion and exceeded market forecasts. Credit card usage increased by USD 9.2 billion. Education loans and auto credit increased by USD 16.2 billion has already risen in the previous month. From 1950 to 2018, US consumer credit reached a staggering USD 118 billion in 2010 and an all-time low of USD -113 billion.
In 2019, while personal finance and homes are likely to see a continued upward curve, credit cards and the auto areas might plateau.
