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The composite consumer credit default index tumbled by seven basis points from August to September, driven by substantial declines in both the first and second mortgage default rates, according to S&P Dow Jones Indices and S&P/Experian Consumer Credit Default Indices for September 2015 released Tuesday.
The composite default rate, which includes first and second mortgage defaults as well as defaults on bank cards and auto loans, fell from 0.96 percent in August down to 0.89 percent in September and is now only one basis point higher than its historic low of 0.88 percent reached in May 2015. The S&P/Experian Consumer Credit Default Indices were launched in May 2010. The composite credit default index includes first and second mortgage defaults as well as defaults on bank cards and auto loans.
The default rates for both first mortgages and second mortgages dropped from August to September, fueling the decline in the composite index. The first mortgage default rate fell by eight basis points down to 0.76 percent and the second mortgage default rate dropped by 10 basis points down to 0.47 percent in September. Both rates are close to the historic lows for the first and second mortgage default rates of 0.74 percent and 0.42 percent, respectively, both reached in May 2015.
“Default rates on consumer credit and mortgage borrowing are fairly stable and close to the lowest levels seen in the last 10 years,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Debt services ratios—the proportion of income going to paying down consumer credit and mortgage debt—are close to the lowest on record since the Fed began collecting the data in 1980. At the same time, consumer credit and mortgage debt outstanding are rising. Consumer credit in August rose at a 5.2 percent annual rate; mortgages as of the second quarter were up 2.1 percent over the last four quarters. While continued low interest rates are certainly a positive factor, the possible rate increase by the Federal Reserve is not likely to alter the picture significantly.”
“Default rates on consumer credit and mortgage borrowing are fairly stable and close to the lowest levels seen in the last 10 years.”
—David M. Blitzer
The default rates for both bank cards and auto loans increased from August to September by six basis points and two basis points, respectively, up to 2.77 percent and 0.92 percent. Four of the five major cities covered in the S&P/Experian report saw their default rates decline from August to September, with Miami turning in the largest decrease at 39 basis points down to 1.07 percent. In New York, the default rate dropped by 14 basis points in September down to 0.90 percent; in Chicago, the default rate fell by 12 percent down to 1.09 percent; and Los Angeles reported a decline of two basis points down to 0.74 percent. The only outlier was Dallas, where the default rate held steady at 0.71 percent from August to September.
“Increases in spending and rising home sales are contributing to the growth in credit outstanding,” Blitzer said. “Personal consumption expenditures in real (inflation adjusted) terms have been rising at a 3 percent annual rate since late spring and don’t show signs of a major decline. Sales of both new and existing homes are showing good numbers with the combined annual rate close to six million homes.”
