June 2024 Market Pulse Webinar: Credit Trends

Our latest Market Pulse webinar gave our panelists the opportunity to share insights on the current state of consumer profiles and populations as well as how you can leverage that data to optimize your acquisition, origination, prescreen, and account management decisioning. 

Joining us from Equifax, Tom O'Neill, Risk Advisor, shared the latest U.S. consumer credit insights. An overview of his content is below. 

CREDIT TRENDS with Tom O’Neill, Risk Advisor, Equifax

First mortgage originations are up by 5% year-to-date compared to 2023, despite a soft housing market characterized by low inventory and high prices.¹ This increase is partly due to more resale homes entering the market and a rise in new home construction; however, many homeowners remain hesitant to sell due to their current low mortgage rates.¹ Affordability issues persist, especially for first-time buyers.¹ Conversely, year-to-date auto loan originations have decreased, with a continuing decline in the subprime share of auto lending.¹

As of February 2024, the number of new bank card accounts has decreased year-over-year, but the total credit limits for these new cards have increased.¹ The average credit limit granted at origination has risen by about 7.5% from the previous year, following an 18% increase from 2022 to 2023.¹ This trend of rising initial credit limits has been consistent since 2021, when average limits were at their lowest in recent history, while the share of new subprime card originations has been declining since its peak in 2021.¹

By February 2024, consumer originations had slowed across auto lending, personal loans, and private label cards.² However, as of April 2024, total consumer debt has increased in nearly all major lending channels except personal loans.3 Despite a decline in new lending, overall consumer debt — now exceeding $17.5 trillion — continues to rise because new lending still surpasses the rate of debt repayment.³ Notably, bank card balances have increased by over 10% from the previous year, with credit utilization remaining steady and credit lines expanding both at account opening and through ongoing increases.³

Consumer delinquency rates, which have been a concern for some time, are starting to show sustainable improvements beyond typical seasonal effects. Although delinquency rates are still higher than pre-pandemic levels, they are lower than during the 2009 financial crisis.4 For instance, credit card delinquencies remain elevated compared to March 2020 but are lower than 2009 levels.⁴ Auto delinquencies are about 30% higher than early 2020, yet they are beginning to decline month-over-month.⁴ Subprime segment delinquencies, which surged in 2021, are stabilizing and showing recent declines.⁴ Seasonal factors like tax refunds might influence these improvements, so continued monitoring is necessary.⁴

Households have generally seen an increase in wealth over recent years; however, a majority still hold less than $100,000 in non-mortgage assets.5 This growth in wealth has driven strong consumer spending, but consumer sentiment still remains low.⁵ This apparent contradiction arises because, while wealth is growing and many people are better off economically, inflation has a significant emotional and real-world impact, subsequently causing stress and negative feelings about the economy.⁵ From 2020 to 2023, total assets grew across all wealth tiers.⁵ The "mass market" tier, which includes households with less than $100,000 in non-mortgage assets, contained about 72 million households by the end of 2023 — 12% fewer than in 2020.5 Despite the decrease in households, the total non-mortgage assets for this group increased by 7%.⁵ In the "mass affluent" tier ($100,000 to $1,000,000) and the "affluent" tier (over $1,000,000), the number of households grew, and the assets controlled by these groups increased even more significantly.⁵ Average household assets in all three tiers rose from 2020 to 2023, indicating an overall increase in wealth for Americans.⁵

When accounting for inflation and converting totals to 2020 dollars, the increase in wealth appears much smaller.⁵ While nominal wealth has grown, the actual purchasing power of these assets hasn't kept up with inflation for most households, effectively decreasing their real value. The mass market tier is the exception, seeing an increase in inflation-adjusted assets, though not significantly enough to improve financial stability. This adjustment explains why strong nominal wealth growth hasn't led to increased financial optimism or security.

When analyzing income growth from 2020 to 2023 in 2020 dollars, a nuanced picture emerges. Nominal income growth appears strong across all income tiers, with significant increases for all groups.⁵ For example, individuals earning $125,000-$150,000 in 2020 saw their average income grow from about $129,000 to over $151,000, and those earning below $50,000 saw growth from about $41,000 to over $64,000.⁵ However, when adjusted for inflation, many of these income gains did not keep pace with inflation, resulting in diminished purchasing power for several income groups.⁵ This disparity helps explain why economic strength is not translating into increased financial security or optimism for many households.

STAY IN THE KNOW

To stay on top of all our insights and updates, make sure to follow the Equifax for Business LinkedIn page, and don’t miss our Market Pulse podcasts, available wherever you listen to podcasts, where we will continue with more in-depth conversations on topics we have discussed here.
 

Sources:

1. Equifax; Data are February YTD originations for each year in the series

2. Equifax U.S. National Consumer Credit Trends Originations Report - Published June 2024 - Originations through Feb 2024

3. Equifax U.S. National Consumer Credit Trends Portfolio Report - Published June 2024 - Data as of April 2024

4. Equifax Market Pulse Credit Trends; Data through April 2024

5. Equifax Credit Trends and IXI Data 2020-2023