Consumer credit default rates are expected to increase over the next several months due to recent hurricanes and wildfires
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The rate of first-mortgage defaults increased for the third straight month along with the composite consumer credit default rate, according to the Consumer Credit Default Indices released by S&P Dow Jones Indices and Experian.
The first-mortgage default rate increased one basis point from August to 0.66%, while the rate of second-mortgage defaults rose to 0.53% from 0.50%. The composite rate increased two basis points from last month to 0.88%.
"While the composite consumer credit default rate eased higher in the last three months, it is even with the level of one year ago," says David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "Looking at the components, we see that moves among mortgages, bank cards, and autos have tended to offset one another over the past year. As a result, no sector is currently showing substantial increases or signs that consumers are facing renewed financial stress.”
Blitzer said consumers appeared to have had a favorable situation through the summer, given indicators such as the moderate proportion of debt service to income and the moderate expansion in consumer credit and mortgage borrowing.
However, challenging circumstances in some regions could shift the current picture of consumer credit default. The South and Southeastern regions continue to recover from Hurricanes Harvey and Irma, while California and the West region see further damage and loss from recent wildfires.
“Estimates of hurricane damages suggest a total cost of $70 billion, including the loss of possibly one million automobiles,” Blitzer said. “Damage estimates for the fires are still being determined. Even after insurance coverage and government aid programs, many consumers will face very large unexpected expenses stressing their personal financial situations. Increased consumer credit default rates over the next several months are likely."
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First-mortgage default rate on the rise
July sees uptick in first-mortgage defaults
The first-mortgage default rate increased one basis point from August to 0.66%, while the rate of second-mortgage defaults rose to 0.53% from 0.50%. The composite rate increased two basis points from last month to 0.88%.
"While the composite consumer credit default rate eased higher in the last three months, it is even with the level of one year ago," says David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "Looking at the components, we see that moves among mortgages, bank cards, and autos have tended to offset one another over the past year. As a result, no sector is currently showing substantial increases or signs that consumers are facing renewed financial stress.”
Blitzer said consumers appeared to have had a favorable situation through the summer, given indicators such as the moderate proportion of debt service to income and the moderate expansion in consumer credit and mortgage borrowing.
However, challenging circumstances in some regions could shift the current picture of consumer credit default. The South and Southeastern regions continue to recover from Hurricanes Harvey and Irma, while California and the West region see further damage and loss from recent wildfires.
“Estimates of hurricane damages suggest a total cost of $70 billion, including the loss of possibly one million automobiles,” Blitzer said. “Damage estimates for the fires are still being determined. Even after insurance coverage and government aid programs, many consumers will face very large unexpected expenses stressing their personal financial situations. Increased consumer credit default rates over the next several months are likely."
Related stories:
First-mortgage default rate on the rise
July sees uptick in first-mortgage defaults
