Tuesday, August 23, 2011

Consumer Delinquency Rates Fall to Pre-Crisis Level

The Federal Reserve released data yesterday on delinquency and charge-off rates at U.S. commercial banks for the second quarter of 2011.  For consumer credit cards, the delinquency rate fell for the 8th consecutive quarter to 3.62% during the April-June period this year, dropping to the lowest level since a 3.54% reading in the fourth quarter of 2005, more than five years ago (see blue line in chart).  And before that cyclical low, you have to go all the way back to the first quarter of 1995 to find a lower credit card delinquency rate of 3.46%.  Compared to the 4.6% quarterly average since 1991, the delinquency rate on credit cards is now about a full percentage point below the long-run average. 

For all consumer loans, the second quarter delinquency dropped to 3.28%, the lowest rate since 3.2% in the third quarter of 2007 before the recession started (see red line in chart). The second quarter delinquency rate is also below the 3.5% historical quarterly average. 

The fact that consumer loan delinquency rates are back to pre-recession levels is part of the ongoing deleveraging of American households, who are also saving now at mid-1990s levels (see CD post here).  It's also more evidence that the worst is behind us.  Now if we could just get the Beltway elite to show some of the same financial responsibility that American households have been demonstrating of late.  

HT: Scott Grannis reported on this yesterday.

5 Comments:

At 8/23/2011 2:33 PM, Blogger morganovich said...

http://www.calculatedriskblog.com/2011/08/mortgage-delinquencies-by-loan-type.html

that's certainly not the case in the mortgage market.

delinquencies are still running at 2X pre crisis rates.

 
At 8/23/2011 5:56 PM, OpenID Sprewell said...

Interesting that if you take out the big spike for the recession, delinquency rates have averaged a full point less than they had the decade earlier. No doubt that's because of the increased access to credit and various forms of debt that we've had this decade, which is very good for most, but unfortunately borrowers tend to overdo it and then we see delinquencies spike up again anyway.

 
At 8/24/2011 8:06 AM, Blogger morganovich said...

sprewell-

it could also be a function of more people getting foreclosed, having credit lines withdrawn/cut down, and things like bankruptcy or credit restructuring/rolling over onto new cards.

 
At 8/24/2011 8:35 AM, Blogger morganovich said...

it's also a function of tightened credit standards.

mortgages are tough to get. so are credit cards.

if you have an amex black, sure, you can get all the credit you want, but for most, there is none.

mark likes to talk about low mortgage rates and how they will benefit consumers and reduce the cost of homes. they certainly are cheap.

but generally when you cut prices like that, you get an increase in demand.

this has not occurred.

mortgage purchase applications have fallen to their lowest level since 1996.

http://cr4re.com/charts/charts.html?Existing-Home#category=Existing-Home&chart=MBAAug24.jpg

that would seem to imply that somehting is preventing low prices from stimulating demand.

that something is hiked lending standards (and a lack of down payments, but that should not affect refis).

i'm not so sure that our credit drunkards have learned to behave themselves so much as the punchbowl has been taken away.

 
At 8/24/2011 2:48 PM, OpenID Sprewell said...

morganovich, I think we're making the same point. No doubt credit has tightened but why? My point is that borrowers overspent and started defaulting even with increased credit, so the lenders realized they were being too loose and tightened up their standards. So you're right that things have gotten tighter, but I'm pointing out why that happened.

 

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