July Credit Default Rates Hold Steady
S&P Dow Jones Indices and Experian, New York, reported credit default rates for first mortgages and other forms of consumer credit were relatively unchanged in July.
The S&P/Experian Consumer Credit Default Indices showed the composite rate was unchanged at 0.86%; the first mortgage default rate also held steady at 0.63%. The bank card default rate dropped 15 basis points to 3.56%. The auto loan default rate increased three basis points to 0.96%.
Three of the five major cities recorded decreases in composite default rates in July. Miami showed the largest decrease, falling 62 basis points to 1.68%. The default rate for Los Angeles fell four basis points to 0.61%, while the rate for New York fell one basis point to 0.87%. The default rate for Chicago was unchanged at 0.86%. Only Dallas saw rates move higher, up two basis points to 0.86%.
The report noted after increasing each of the first four months of the year, bank card default rates have now decreased for three consecutive months. Similarly, the default rate for Miami increased each of the first four months of the year before decreasing for three consecutive months. Meanwhile, the composite default rate has gradually fallen and is now nine basis points lower than it was in January.
“There are some conflicting trends behind the continued stability in consumer credit default rates,” said David M. Blitzer, Managing Director and Chairman of the Index Committee with S&P Dow Jones Indices. “Default rates for mortgages and automobile loans have varied very little in the last five years. Defaults on bank cards are more volatile. Despite continued growth of outstanding debt across all three categories which is outpacing wage gain, debt service ratios–the proportion of income needed to cover monthly borrowing costs–are flat to down.”
Blitzer noted consumer sentiment remains “quite high” but is not rising, while sales of both new and existing homes are roughly flat in recent months. “These two trends suggest slower borrowing growth and possibly some stability in bank card default rates,” he said.