Credit Risk

Examining the Past to Understand the Future

Examining the Past to Understand the Future

April 30, 2020 | Flor Santiesteban

Comparing Historic Patterns with Current Trends During Unprecedented Times

Great societal changes bring about big questions – and often, a dive into the past can be helpful in understanding the future economy. In unprecedented days like this, Americans are asking important questions like, “What obstacles will this pandemic create for our economy? And how will the country stay afloat with so many unknowns?”

Although they aren’t quite of the same caliber, there are similar historical situations to our current pandemic. Here’s what we know based on historic patterns and current trends.

2008 in the rearview mirror

Many homeowners are worried that we’re entering a crisis similar to what we experienced in 2008. The good news is that we seem to have learned from the past. In 2008, there were subprime mortgages and excessive new construction home builds. Non-farm payroll employment jobs plunged at a rate of 8.7 million over a two-year period[1]. Median wealth fell 44% between 2007-2010[2]. We’re taking a more cautious approach this time.

In an effort to avoid repeating a 2008 recession, credit requirements on home loans remain stringent. Conforming loans with a modest 5 percent down will continue, but the accepted credit score minimum is approximately 680 – much higher than the 2008 limit. Interest rates are also expected to remain as low as 3 percent[3]. Low inventory combined with low interest rates will cause a pent-up demand from buyers once the pandemic is over, thus protecting the real estate market.

More manageable delinquency rates

Home inventory is low, rates remain low and stimulus packages are dispensed in hopes of helping home prices remain stable. There is also a chance that quarantine will lead homeowners to realize their current homes aren’t meeting their needs. Ongoing work-from-home methods may move more buyers away from cities and out to the suburbs. As with every disaster, it is likely that we will see a rise in delinquency rates. But right now, things look better than expected.

Home Equity Loans and LOC are taking a hit, but we see more narrative codes being reported in trades representing forbearance programs. The CARES Act mandates that mortgage loans backed by Freddie Mac, Fannie Mae, the FHA and other federal programs be given forbearance or deferments lasting up to 180 days, extendable another 180 days[4]. This is if the borrower requests an accommodation and specifies how this will be reported to credit reporting agencies.

Generational differences impact the economy

Millennials and Gen Z witnessed the spiral of 2008, and they’re determined to avoid making the same mistakes. There is some mistrust from the younger generation regarding financial agencies and taking on new, healthy debts. A recent survey from The Society of Actuaries’ Aging and Retirement Strategic Research Program shows 40 percent of Millennials felt this way, compared to 22 percent of all other generations. Additionally, because the generation lacks the funds for homeownership, they will not be significant additions to mortgage delinquencies. That’s why they are investing the money they have conservatively and looking for trusted partners, as opposed to simply selecting the largest or most well-known options.

The Payment Priorities have been indexed and changed dramatically within the younger, less-trusting culture. The amount of overall new debt has stayed the same, which is as severe as derogatory accounts. In fact, the market has been slowly stagnant from 2014 to present, with little debt taken on by Millennials and Gen Z[5]. According to a study conducted by Facebook, “57% of Millennials prefer to pay primarily with cash versus credit. Even affluent Millennials are 2.2X more likely than affluent Gen Xers/Boomers to pay primarily with cash[6].”

We’re all in this together

Covid-19 is nothing like the world has ever seen. Financial institutions have tried to adjust options for consumers to provide personal and economic relief. However, many people will still feel the virus’ impact on income, household stability and personal well-being. Within post-disaster economies, recovery will occur from different outlets. Those outlets could be based on consumer credit finance more than real estate, for example, where housing has historically taken a hit in terms of payments and delinquency rates. The lessons we find in historic patterns certainly apply, but this is a new situation for all of us. It’s crucial to pay attention to current trends and economic changes as we prepare for the year ahead. Staying up-to-speed on data trends helps guide better, more accurate predictions about future market successes.



[1] U.S. Bureau Of Labor Statistics Current Employment Statistics survey

[2] Wolff, E.N. (2016). Household Wealth Trends in the United States, 1962 to 2013: What Happened over the Great Recession?

[3] Yun, Lawrence, Chief Economist and Sr. Vice President of Research, National Association of Realtors

[4] Ratcliffe, C. (‎2019). Insult to Injury: Natural Disasters and Residents' Financial Health

[5] US Consumer Credit File

[6] Facebook internal data for people ages 21–65 with HHI $30k+ in the US, Jan 2016.

Flor Santiesteban

Flor Santiesteban

Product Marketing Manager

Flor leads marketing strategy and execution for the Banking & Lending vertical at Equifax. In this role, she is responsible for developing and implementing integrated marketing campaigns, including thought leadership, sales enablement and demand generation. For more than 20 years, Flor has focused on the financial ser[...]