U.S. Consumer Credit Market Poised for More Growth in 2019

TransUnion forecasts originations to grow and delinquency rates to fall for most credit products

CHICAGO, Dec. 12, 2018 (GLOBE NEWSWIRE) -- Low unemployment rates and continued positive growth in both GDP and real disposable income are among the key drivers that will propel the U.S. consumer credit market in 2019. Partly due to the strong performance of these economic indicators, TransUnion’s (NYSE: TRU) 2019 consumer credit forecast found that originations and consumer balances are expected to increase for most credit products, while serious delinquency rates will likely decline or remain steady.

“The consumer credit market has been buoyed by relatively strong macroeconomic factors this year, and our forecast sees more of the same in 2019,” said Matt Komos, vice president of research and consulting for TransUnion. “Consumer demand for both personal loans and auto loans is expected to remain high, and lenders are expected to continue looking to expand their books of business by providing more subprime and near prime borrowers with loans. This is a positive for both lenders and consumers. Delinquency rates remain at either low or ‘normal’ levels, and lenders have confidence to open up their portfolios to slightly more risk. From a consumer perspective, subprime and near prime borrowers accessing new credit will now have even more opportunity to showcase that they can responsibly manage their payments. We anticipate the trend of managing risk exposure through loan amount and line management strategies for these higher risk consumers will continue into 2019.”

Serious Borrower-Level Delinquency Rates Mostly Trending Down for Key Credit Products**

Credit Product10 Years Ago
(Q4 2010)
Q4 2016Q4 2017Q4 2018*Q4 2019*
 Auto Loans1.27%1.44%1.43%1.43%1.44%
 Credit Cards2.17%1.79%1.87%1.94%2.04%
 Mortgage Loans6.65%2.28%1.86%1.62%1.45%
Unsecured Personal Loans4.78%3.83%3.29%3.50%3.39%

*Projections; **Serious mortgage, auto loan and personal loan delinquencies are defined here as those with payments 60 or more days past due. Serious credit card delinquencies are defined as those with payments 90 or more days past due.

A few outliers in the forecast come by way of serious credit card delinquency rates and originations as well as mortgage originations. Credit card delinquency rates are expected to rise from 1.94% in Q4 2018 to 2.04% in Q4 2019 as a shift toward more non-prime consumers with access to credit cards will likely negatively impact originations and consequently the serious delinquency rate. TransUnion is forecasting mortgage originations to drop as well. This latter forecast is based in part on increases expected for both the Prime and Mortgage Interest Rates, a rise in inflation and a low inventory of homes.

Much has been made of increased lending to subprime borrowers in recent quarters. TransUnion has noted that more borrowers from this risk group have and will continue to gain access to loans in 2019. 

Percent of Loans Originated to Subprime Borrowers For Full Year Expected to Mostly Rise*

Auto Loans16.5%15.1%14.6%
Credit Cards18.8%19.3%18.4%
Mortgage Loans3.9%3.6%3.4%
Unsecured Personal Loans35.4%34.5%33.5%

*Projections for full year 2018 and 2019.

However, the percentage of subprime borrowers originating loans still remains far below what was observed at the onset of the last recession. In 2007, the percentage of subprime borrowers originating loans for key credit products, included: 20% for auto; 25% for credit cards; 9% for mortgage; and 39% for unsecured personal loans.

“Everything is relative in consumer credit, and an increase in subprime borrowers should not be worrisome at this time. Balancing risk and returns is an instrumental part of consumer lending, and small increases to delinquency rates are often part of the planning process—a normal derivative of granting wider access to credit. Even though it has now been a decade since the last recession, lenders continue to be cautious. In our estimation, the rise in non-prime borrowing we have observed and expect to see next year are a net-net positive,” concluded Komos.

For more information about the 2019 TransUnion forecast and to register for a webinar providing detailed projections, please click here. A direct link to the 2019 consumer credit forecast webinar may be found here

TransUnion Forecast: Top Consumer Credit Trends for ‘19

Trend #1: There’s Room for Growth in Personal Loans

Personal loans continue to display signs of strength, and total balances are expected to climb 20% to an all-time high of 156.3 billion by the end of 2019. Over the past year subprime originations saw a resurgence – which is expected to slowly rise in the coming year. Originations will remain at healthy levels across all risk tiers due to more lenders participating in the personal loan market. The emergence of large personal loan lenders, and an increased focus by banks and credit unions on offering personal loan products, will keep growth steady. Even with growth expected in the subprime risk tier, overall serious delinquency rates are expected to drop 11 basis points in 2019 from the end of 2018 to finish next year at 3.39%. This is primarily due to maintaining a healthy mix of prime consumers on the books as lenders extend credit to subprime consumers concurrently.

Instant Analysis
“Personal loans, whether for home improvement, debt consolidation or bridge finance, have reemerged as a staple of the American consumer’s financial portfolio. We anticipate origination levels to remain healthy across all risk tiers, and should the regulatory environment remain favorable, we expect to see continued growth from the subprime risk tier. The number of consumers with a personal loan will continue to grow in 2019 and could potentially outpace some of the balance growth we’ve seen over the past few quarters.”

- Jason Laky, senior vice president and TransUnion’s consumer lending line of business leader

Trend #2: Affordability May Impact the Auto Industry

There are many factors that may impact auto affordability in the coming year, which could result in a slowdown in origination growth. The potential of rising tariffs could materially impact vehicle prices and consumer affordability. Furthermore, many consumers are purchasing and financing more expensive vehicles, such as SUVs and hybrids. Headwinds such as rising interest rates and fuel prices could also further impact auto affordability. Despite these potential challenges, TransUnion believes other macroeconomic factors such as low unemployment and an increase in GDP will continue to drive origination growth while keeping the average  delinquency rate relatively low.  It’s also worth noting that the number of auto loan originations is expected to end 2018 at 28.5 million and grow to 29.4 million in 2019. This is a significant increase from recent years (27.5 million in 2017, 28.3 million in 2016, 28.0 million in 2015). This growth is expected to be driven from both ends of the risk spectrum. Yet as the growth continues, the serious delinquency rate is anticipated to remain muted, ticking up to 1.44% in Q4 2019, an increase from the expected 1.43% in Q4 2018 and the 1.43% mark observed in Q4 2017.

Instant Analysis
“The auto finance market continues to show signs of health and growth in many ways. We anticipate used vehicle sales and auto refinance to be potential possibilities for consumers who cannot afford to buy new vehicles. Delinquencies have improved over the past several quarters and should that trend continue, we expect to see the market rebound.”

- Brian Landau, senior vice president and TransUnion’s auto line of business leader

Trend #3: Homes Becoming More Expensive, but Home Equity Increases Could Be a Boon to Consumers

Mortgage originations have declined the past several quarters, a trend that is expected to continue into 2019.  Rising interest rates, increasing home prices, and supply constraints are driving lower origination numbers.  Average balances will continue to trend upward in 2019, growing from an anticipated $208,831 at the end of Q4 of this year to $218,490 by the end of Q4 2019, a 4.6% increase.  This will be largely driven by increased prices for newly purchased homes, a drop in the refi share, and a potential shift in purchase mix.  Delinquencies are forecasted to continue their downward trend, going from an anticipated 1.62% by the end of 2018 to 1.45% by the end of 2019. This continues a consistent downward year-over-year trend seen every quarter since TransUnion started tracking these metrics in 2010. 

Instant Analysis
“While overall originations will be down in 2019, increases in home prices are resulting in record levels of home equity, which provide homeowners more opportunities to tap into low APR home equity products.  This will particularly benefit consumers deciding pay off other higher interest rate products – as well as consumers finding it difficult to afford a new ‘move up’ house, who instead opt to invest in improving their existing home.”

- Joe Mellman, senior vice president and TransUnion’s mortgage line of business leader

Trend #4: More Near Prime Consumers will Carry a Credit Card

More consumers than ever before are carrying a credit card, as credit card issuers provide greater financial inclusion. The composition of origination growth is expected to shift as near prime and prime risk tiers reverse the declining trend observed during the past seven quarters. Near prime consumers are expected to increase their origination share to 19.1% in 2019, up from 18.3% in 2018. Total credit card balances are expected to rise 4% and finish 2019 at $840 billion. While delinquency levels are rising, it’s important to note that they are expected to be at or near the 2% level – one which is deemed to be ‘normal.’

Instant Analysis
“Overall, credit card originations are expected to remain fairly steady. The straddle pattern we have most recently seen, where growth is predominately coming from super prime and subprime tiers, is expected to shift. We expect the percent of non-prime originations to decrease 2.4% as the composition of new accounts changes. The prime segment will see a resurgence in origination growth in the coming year, indicating lender’s desire for credit quality for their portfolios as delinquency continues to increase.”

- Paul Siegfried, senior vice president and TransUnion’s credit card line of business leader

For more information about the 2019 TransUnion forecast and to register for a webinar providing detailed projections and information on the quarterly Industry Insights Report, please click here.  A direct link to the 2019 consumer credit forecast webinar may be found here.

TransUnion’s Forecast

TransUnion’s forecasts are based on various economic assumptions, such as gross domestic product, home prices, disposable income and the unemployment rate. The forecasts could change if there are unanticipated shocks to the economy, such as if home prices unexpectedly fall. Better-than-expected improvements in the economy, such as precipitous drops in unemployment or increases in productivity, could also impact these forecasts.

About TransUnion (NYSE:TRU)

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Contact   Dave Blumberg
E-mail dblumberg@transunion.com
Telephone 312-972-6646