Eye On Housing
The total amount of consumer credit outstanding rose in January 2017 reflecting growth in non-revolving credit, auto loans and student loans. Meanwhile, the outstanding amount of revolving credit, largely composed of credit cards, shrank.
According to the Federal Reserve Board’s Consumer Credit release, the total outstanding amount of consumer credit climbed by a seasonally adjusted annual rate of 2.8 percent in January 2017, 1.9 percentage points less than its growth rate in December, 4.7 percent. Non-revolving credit expanded by 5.5 percent, 0.6 percentage points faster than its December rate of 4.9 percent. However, after registering a growth rate of 4.3 percent over December, revolving credit fell by 4.6 percent in January. On a seasonally adjusted basis, there is now $3.774 trillion in outstanding consumer credit, 74 percent represented by non-revolving credit, $2.778 trillion, while revolving credit accounts for 26 percent, $995.1 billion.
In addition to non-revolving credit overall, the report also provides information on the amount auto loans outstanding. The figure above illustrates that annualized growth in auto loan debt, a component of non-revolving credit, has exceeded inflation in the years since the recession. In contrast, auto loan growth in 2006 and 2007 lagged inflation. The idea for this chart comes from analysis by First Isaac Corporation (FICO). Their research found that the growth in the size of auto loans, which is contributing to the expansion in total auto loan debt, has been “increasing faster than inflation since the recession”.
In a subsequent post, they find that the size of auto loans is rising because “consumers are ending up with longer terms for their car loans.” In the chart below, copied from their post, they show how five-year loans were the most popular length of auto loan in 2009, but that its share has been shrinking in the months and years since. The decline in the share of auto loans with a term of five years has been offset by growth in auto loans with a term of six years (72-83 months) and 7 years or more (84+). They assert that “this trend occurred across all FICO Scores”.
They also find that “delinquencies are higher for six-year loans than five-year loans across the score spectrum”. The table below, copied directly from their post, confirms this assertion. The table shows how the 90 or more day delinquency rate falls as the borrower’s credit score rises. However, the 90 or more day delinquency rate on six-year auto loans exceeds its rate on five-year loans for all credit scores depicted.
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