Eye On Housing
The Federal Reserve Board recently reported that consumer credit outstanding grew by a seasonally adjusted annual rate of 7.0%, $234.5 billion, in the second quarter of 2015, 1.4 percentage points faster than the 5.6% rate of growth recorded in the first quarter of 2015. Consumer credit outstanding now totals $3.422 trillion.
The increase in total consumer credit outstanding partly reflected an expansion in the outstanding amount of non-revolving consumer credit. Non-revolving consumer credit includes auto loans and student loans. According to the report, non-revolving credit outstanding rose by a seasonally adjusted annual rate of 7.0%, $171.9 billion, in the second quarter of 2015. However, the growth rate in the second quarter of 2015 was 0.5 percentage points less than the 7.5% growth rate recorded in the first quarter of 2015. There is now $2.516 trillion in outstanding non-revolving credit.
Revolving credit, which is largely composed of credit card debt, also rose by 7.0% over the second quarter of 2015, contributing to the increase in consumer credit outstanding overall. The rate of growth in revolving credit over the second quarter of 2015 was 6.6 percentage points greater than the 0.4% growth rate recorded in the first quarter of 2015, but, since the outstanding amount of revolving credit is less than the outstanding amount non-revolving credit, then, over the second quarter of 2015, the dollar increase in revolving credit outstanding was less than the dollar increase in non-revolving credit outstanding. There is now $907 billion in outstanding revolving credit, 62.6 billion greater than its level in the first quarter of 2015.
A previous post illustrated that mortgage applicants with higher credit scores are more likely to obtain bank approval than those with lower credit scores. The same is true for credit cards and auto loans. Lending standards on credit cards and auto loans for prime borrowers are easier than credit standards for subprime borrowers.
The most recent iteration of the Federal Reserve Board’s Senior Loan Officer Opinion Survey asked bank respondents to identify, for each loan category, the respective bank’s current credit standards relative to the range of standards that prevailed at that bank between 2005 and the present period. The answers can be reduced to “easier than the midpoint of the range”, “near the midpoint of the range”, and “tighter than the midpoint of the range”.
Figure 1 compares the share reporting that lending standards are easier than the midpoint of the range with the percentage mentioning that standards are tighter than the midpoint of the range for credit cards and auto loans, differentiated by prime and subprime borrowers in each respective loan category. The net share is the difference between the portion of bank respondents reporting that lending standards are “easy” and the share reporting that lending standards are “tight”.
As shown in the figure above, a net share of 4% of bank respondents indicated that lending standards on credit cards for prime borrowers are easier than the midpoint of the range of standards that prevailed between 2005 and the present. In contrast, a net share of 9% of senior loan officers indicated that lending standards on credit card loans for subprime borrowers were tighter than the range of standards that prevailed between 2005 and the present.
Similarly, lending standards faced by prime borrowers of auto loans are easier than the midpoint of the range of standards in effect between 2005 and the present, while credit standards on auto loans for subprime borrowers remain tighter than average. As shown in Figure 1, 20% of survey respondents indicated that credit standards on auto loans at their respective bank were easier than the midpoint of the 2005-present range while 15% of loan officers said that standards were tighter than the midpoint of that range. For auto loans to subprime borrowers, 23% said that standards were currently easier than the midpoint of the 2005-present range, but 40% mentioned that standards were tighter than the midpoint.
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