A few weeks ago we noticed an item claiming that there is a 'big car loan problem.' At the time, we were skeptical, as there were no confirming stories or numbers from the auto lenders. It is becoming clear that the report was about the worst of the car-loan borrowers--thus the hair-on-fire report.
Now comes Wolf Street with the reality.
In 2020 and 2021, consumers used their stimulus money and extra unemployment benefits and their PPP loans and the cash left over from not having to make rent or mortgage payments, or whatever, to get caught up on their auto loans. And the rate of auto loans that were delinquent 30 days or more dropped from one historic low to the next and finally bottomed out in Q4 2021 at 5.0%.
Since then, this delinquency rate has started to rise from the historic low. In Q2 2022, the delinquency rate rose to 5.6% of total auto loan balances, according to data today from the New York Fed’s Household Debt and Credit Report. It remains below the pre-pandemic low of 6.4%.
The delinquency rate is now normalizing, heading back toward the old normal, which hovered at around 7% during the Good Times...
He also 'splains the rise in auto loan balances: cars are a LOT more expensive than they used to be. New car prices up 11.4%, used-car prices up 6.1%.
We're thinking that the delinquency numbers will be nasty--that is, above the 7% norm--but not until 2Q23 or so. And that's when car prices will slide, hard.
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