After a year of credit tightening in 2020, consumer credit remains down across the board. That includes balances, utilization and delinquency. The exception is mortgage balances, which have surpassed $10 trillion recently.
“I would not personally have forecasted first mortgage to be so high; however, with the interest rates being so low, consumers have been accessing refinances,” said Tom Aliff, risk consulting leader at Equifax, during our recent Market Pulse podcast episode, “Pent-up Demand & Consumer Credit Expectations.”
Despite credit tightening, Aliff said pent-up consumer demand will likely lead to more spending this year. “There's been a lot of pent up demand. We've all been part of Zoom calls staying at home. And one of the things that I've heard many people say is, ‘I can't wait for my next vacation,’” said Aliff. “And so we fully expect that there's going to be some return to normal spend levels as we look across bank card, private label and either home equity lines or even personal loans.”
For more discussion on consumer credit trends, listen to our podcast episode.
Consumer Spend to Shift from Home Gyms to Vacations
Below is an excerpt from our interview. It is edited for brevity.
What trends are you seeing in delinquencies?
Aliff: Across the board, we’ve seen delinquencies are down quite a bit. For example, bank card 60-plus delinquency rate from a dollar perspective is down about 24 percent compared to February of 2020. And, utilization is down 18 percent. That's such a remarkable shift in delinquencies as we look at the year-over-year comparison. With unemployment on the rise, we all thought we would end up in a much more tricky situation.
One of the forecasts we did early on in the April/May 2020 timeframe, we were forecasting what delinquencies would be at this time, given that we weren't sure at the time where accommodations would be put in place. How were consumers going to address this? Was unemployment going to continue to rise? And that prediction was about 23 percent. There's still a little uncertainty in terms of where things are going once stimulus runs out. And I believe it's going to be a race between what's the sustainability of lending versus the distribution and opening up of more things with vaccines occurring.
We've discussed over the past year how stimulus packages, the one-time payments and additional support with the unemployment insurance have really helped consumers. And that could be one of the leading indicators as to why people weren't running up their credit cards or using that to pay down their debt. Is that still what we're thinking or what we're seeing in the data?
Aliff: Yes, and I would say that we'll continue to see that occurring with the latest stimulus coming. And unless things start opening up more, then the stimulus will be leveraged for those long-awaited vacations that we've been talking about. So, I believe we’ll continue to see some decline in balances, as well as utilization. But once spring starts kicking up, my expectation is that people will want to do more things versus building out their home gyms or shopping online.
More Market Pulse Resources
For more on this interview, listen to our full podcast. To access the latest consumer credit and small business insights, contact your Equifax account executive or visit us online. You might also enjoy checking out Economy.com by Moody’s Analytics for the latest economic updates. RESOURCES mentioned in this podcast: