November Default Rates Hold Steady

Following four consecutive monthly increases, composite default rates fell slightly in November, according to S&P Dow Jones Indices and Experian, New York.

The report said the composite rate decreased by one basis point from October to 0.89%. The bank card default rate was unchanged at 3.28% and the auto loan default rate was unchanged at 1.11%. The first mortgage default rate decreased one basis point from October to 0.66%.

Three of the five major cities saw their composite default rates rise in November. Los Angeles and Dallas saw the largest increases, with Los Angeles up from 0.72% to 0.76% and Dallas up from 0.78% to 0.82%. Chicago also reported an increase, up one basis point to 1.09%.The default rate for New York fell seven basis points to 0.93% while the rate for Miami dropped nine basis points to 0.97%.

First mortgages were the only loan type to report a lower default rate versus one year ago. Due to higher default rates in bank cards and auto loans, the composite default rate shows a two basis point increase over this period.

“The overall economy is ending 2017 on a strong note with very low unemployment, modest inflation and real GDP up better than a 3% annual rate in the second and third quarters,” said David Blitzer, Managing Director and Chairman of the Index Committee with S&P Dow Jones Indices. “At the same time, the savings rate–personal savings as a percentage of disposable personal income–is slipping as spending rises faster than income for most Americans.”

Blitzer noted as recently as October 2015, the savings rate was 6.3%; this past October, it was halved to 3.2%. “With spending rising faster than wages, the savings rate is likely to drop further and consumers will be forced to increase their borrowing,” he said. “Whether wage growth picks up, spending slows, or default rates climb remains to be seen.”