January Composite Default Rates Up
Mike Sorohan firstname.lastname@example.org
Composite default rates, driven largely by a spike in bank card defaults but also in first mortgage defaults, increased in January, reported S&P Down Jones and Experian, New York.
The S&P/Experian Consumer Credit Default Indices showed the composite rate increased by four basis points from December to 0.95%. The first mortgage default rate increased four basis points to 0.72%. The bank card default rate rose by 13 basis points to 3.57%. The auto loan default rate fell three basis points from December to 1.07%.
Three of the five cities tracked saw increases in January composite default rates. Miami saw the largest increase, up 29 basis points to 1.27%. Chicago recorded an increase of eight basis points to 1.23%, while Dallas was two basis points higher at 0.87%. Default rates for New York and Los Angeles were both unchanged, at 0.95% and 0.77% respectively.
David Blitzer, managing director and chairman of the Index Committee with S&P Down Jones Indices, said the composite default rate has crept steadily higher over the past several months, largely driven by bank card default rates, which have jumped by 42 basis points since September and have now reached a nearly four-year high. Auto loan and first mortgage default rates remain stable, at levels almost identical to those observed one year ago.
"The economy is growing, consumers are bullish and they're spending money," Blitzer said. "We are seeing the usual result of spending growth: modest increases in consumer credit defaults--especially in bank cards--and overall increases in the level of debt in the economy."
Blitzer said neither the defaults nor the amount of debt outstanding are immediate problems. "The Federal Reserve is expected to continue raising interest rates," he said. "Home mortgage rates, which respond to movements in the financial markets, have risen from 4% to about 4.4% since the beginning of 2018. Although interest rates have increased, there are few signs of financial tightness or increased difficulties in qualifying for loans. Rates on bank cards tend to be more stable but higher than mortgage or auto loan rates."