Consumer credit default rates remained relatively flat in March despite a jump in bank card default rates, according to the S&P/Experian Consumer Credit Default Indices.
The composite consumer credit default rate of 0.93% in March was down four basis points from February.
The bank card default rate increased 36 basis points in March,recording a default rate of 2.92%. The first mortgage default rate of 0.77% in March was down seven basis points from February. Auto loan defaults recorded a 1.02% default rate, down three basis points from February.
"The rate of bank card defaults is both greater and more volatile than mortgage defaults. Behind these figures are further differences in these borrowing patterns. Outstanding balances for bank cards, as measured by the Federal Reserve’s figures on revolving credit, were up 5.2% in 2015 compared to an increase of 1.0% for mortgages on one- to-four family residences. Bank card balances, which surged in the first half of 2014, leveled off somewhat until the start of 2015, and then accelerated again through the end of last year. They are down slightly for the first two months of 2016,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. "Mortgage balances are quite different. Until the last quarter of 2014, outstanding mortgage balances declined and then saw a small increase in 2015.”
The numbers appear to tell different stories about consumer behavior. While bank card balances and defaults saw increases, consumer prices were flat, indicating that the growth in balances reflects increased spending. Mortgage balances barely grew even though home prices, as measured by the S&P/Case-Shiller Home Price Index, are rising 5% to 6% annually. The substantial majority of home sales are of existing homes, which means mortgages are being paid off at the same time new mortgages are being written.
"The continuing low rates of consumer credit defaults in mortgages, auto, and bank card loans are positive signs for the economy," said Blitzer. "Large mortgage debts followed by rapidly rising defaults in all kinds of consumer credit were key causes of the financial crisis. Conditions today are much improved; not only are defaults down, but outstanding mortgage balances were about 12% below the peak seen in the first quarter of 2008. Debt service ratios are close to the record lows set in the last two years as well. This all suggests that consumer spending should continue to support modest economic growth."
Four of the five major cities saw their default rates increase in March. Miami reported a default rate of 1.15%, up eight basis points from February. Los Angeles recorded a default rate of 0.81% in March, up five basis points from February. New York reported a default rate of 0.99%, a two basis point increase from the previous month. Chicago reported a default rate increase of one basis point, posting a 1.03% default rate for March. Dallas was the only city to report a default rate decrease, with a 0.75% default rate, down 28 basis points from February.