For our April 14 Market Pulse webinar, our panel of experts discussed the recent supply chain crisis, as well as, the latest economic update, small business insights, and consumer credit trends.
This month’s presenters included Daniel Pickett, Chief Data & Technology Officer at Freight Waves; Robert Wescott, President & Founder of Keybridge; Sarah Briscoe, Lead Commercial Statistical Analyst at Equifax; and Tom Aliff, Risk Consulting Leader at Equifax.
Did we not have enough time to answer your questions during the webinar? Below our presenters answered all questions we did not have time for. However, if you would like to watch the whole webinar or download the slides check out our website here.
How high do you estimate interest rates will rise on mortgages over the next few quarters through the end of the year?
Robert Wescott: The interest rates can go up a little bit more than people think. My phone buzzed today saying that, “Freddie Mac's average mortgage rate hit 5% this week so we're already at five and we're at 3% as recently as October.” It will go to 6% and 7% by the end of the year. There's a lot of momentum in the housing sector, but our analysis suggests that housing could peak pretty quickly if rates start to go up to those kinds of numbers.
How much of that two trillion dollars in excess savings do you think is still on households' balance sheets?
Robert Wescott: Most of the two trillion is still in balance sheets, but the important thing is that it's now segmenting from lower quintile households, middle quintile, and upper quintile. We've been looking at that in good detail. JP Morgan Institute has bank balance data by lowest 25% households then second 30% and what happened when those stimulus checks hit that we're talking about, lower income households balances went up by more than 100%. They benefited tremendously from those stimulus checks.
The upper income households went up a little bit at around 20%. The lower income quintiles have spent their money and that money is now gone. They're starting to show some more financial stress in reporting even normal bills.The middle and upper income households have pretty much kept that money and they're still where most of that $2.2 trillion is. There's a new Kaiser family foundation survey that came out last month which stated, in July 2020 when stimulus checks were rolling in, households with less than $40,000 of income said only 18% had trouble paying their bills. Households that made more than $90,000 were the same number with 18% saying they had trouble paying their bills.
Then the new survey came out with February data. Now 47% of the lower income households said they're having trouble paying their bills. 12% of upper income households say they're having trouble paying their bills, so we're definitely seeing that the money is there, but it's now in the middle and upper income household’s pockets and lower income households are getting more tapped out there, getting more stressed, and some delinquency we're going to start to see creep up, especially among the bottom two quintiles of the income distribution.
Do you attribute the bump back up of delinquency rates to a return of normalcy of lenders in collection of activities (deferments going away)?
Tom Aliff: There is some aspect of delinquencies being on the rise with the deferments going away. However, the total percentage of loans that were reported within a deferment status was less than 5% when looking at the highest during the period. Now it's a fraction of that in terms of that coming in. When we look at the delinquency rates, they have 1 ½% within auto as a whole, that's going to be a small fraction of a small fraction which is not necessarily going to be moving the delinquency rates too much. Now, if there were accounts that were in a different status or some form of forbearance and it was not reported to us in that way then I could see that having an impact, but at this time I don't necessarily attribute that increase specifically to that, based on the data that I have seen.
What are some steps you’re taking to address these supply chain issues? What steps are you seeing customers take to have greater visibility to the supply chain?
Daniel Pickett: Some steps I would take are integrating more with suppliers and trying to get real time information back from them on the status of their own inventory levels or their own purchasing. Companies we work with talk about how there's a decrease in demand. Everybody that ships things does a mix of spot and contract. For your contract, you set a rate and it's good for three months to 12 months. Spot rates, you go out and book one load today and then you move it. Because volumes are declining, we see some of the most intelligent companies not even shipping against their contracted freight and just sending everything to the spot market because rates have declined.
Ultimately, we will pull down contract prices, which will bring down overall finished good prices to consumers, which helps take some of that pressure off of inflation. The smartest companies have recognized that the spot market for transportation of all modes has declined below the existing contracts. It's time to either reset those contracts, or take advantage of some softness we're seeing in demand for movement of goods.
* The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.