Mortgage defaults remain stable as economy keeps growing

Modest default levels show current debt levels are manageable

By Francis Monfort

23 May 2018

The mortgage default rate remained stable in April compared to the previous month as economic conditions stayed positive, according to the Consumer Credit Default Indices released by S&P Dow Jones Indices and Experian.

First-mortgage defaults were at a rate of 0.68% during the month, down from 0.72% in March and also slipping from 0.69% a year ago. The composite consumer credit default rate decreased four basis points to 0.92% from March, but increased slightly year over year from 0.9%.

"The overall economic picture is positive, with continued moderate growth, a further decline in unemployment to below 4%, and quite strong consumer sentiment," said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. "Inflation remains at or below 2%, a level where most consumers tend to ignore small or periodic price increases.”

Blitzer also said that while the rate of wage gains as well as home price increases hint of possible future concerns for some consumers, neither has affected consumer credit defaults so far.

The index also found that the bank card default rate rose eight basis points to 3.86%. Bank card default rates have been higher or unchanged for seven consecutive months, and now are at their highest level since June 2012. The auto loan default rate, which continues to remain stable, fell six basis points from last month to 0.99%.

"Consumer borrowing is expanding as the economy continues to grow. Revolving credit – borrowing through bank and credit card accounts – is growing at about the same pace as the overall economy,” Blitzer said. “Mortgage debt outstanding is rising at a similar pace. Non-revolving loans, including auto loans, are growing faster than the overall economy. As today's modest default levels show, current debt levels are manageable. The fear is that when the next recession comes, debt levels will have climbed far higher while personal savings will have remained modest at best."