Amidst Stubbornly High Inflation, Consumers Continue to Turn to Credit Cards, Home Equity to Maintain Stability

HELOCs and HELOANs continue to grow as homeowners tap into record levels of home equity

Q4 2022 CIIR Mortgage Loan Summary

Mortgage originations continued their slowdown in the face of higher interest rates, with the most recent quarter of data, Q3 2022, showing a 56% decrease YoY in overall originations, down to 1.5M from 3.4M in Q3 2021. For the sixth consecutive quarter, new purchases made up the bulk of total origination volume in Q3 2022, up 28 percentage points from 55% in Q3 2021 to 83%, outnumbering refinance five to one for the quarter with volumes on par with pre-pandemic levels (1.2M). Overall refinance originations fell by 84% YoY to 250,000; the lowest on record - driven primarily by the dramatic decrease of rate-and-term refinances, down by 95% YoY to 40,000. Total mortgage balances reached a record level in Q4 2022 of $11.7 trillion, 9% higher than the same period last year. The annual growth rate of tappable homeowner equity continues to increase, up by 18% YoY in Q3 2022, reaching an all-time high of $20.2 trillion. This represents an increase of $600 billion from Q2 2022. HELOCs were up 41% YoY in Q3 2022, while Home Equity loan originations grew 47% YoY in 2022, representing the most Home Equity loan originations on record since 2010. Delinquencies ticked up, with borrower delinquency (60+ days past due) growing 17% YoY to 0.96% in Q4 2022. While delinquency levels remain low, this marks the third consecutive quarter of increase.

Instant Analysis

"HELOCs and Home Equity Loans continue to grow at unprecedented levels as homeowners increasingly take advantage of the record levels of tappable home equity they have built in their homes. The main reasons why homeowners utilize the equity available to them is to consolidate debt, home improvement and big ticket purchases. Lenders who will benefit from this trend are those who have the ability to identify and reach homeowners who have equity available to tap and who also, either carry high interest rate debt that can be consolidated or own older homes that may warrant improvements. Leveraging data and analytics from companies like TransUnion that have all this data could result in realized benefits for homeowners (through reduced monthly costs) as well as lenders (through cross-sell conversion and portfolio growth)."

- Joe Mellman, senior vice president and mortgage business leader at TransUnion

Q4 2022 Mortgage Trends

* Originations are viewed one quarter in arrears to account for reporting lag.

Click hereto view our recent study, Where Will Growth in Mortgage Originations Come From?

Despite lower auto prices, higher interest rates driving higher monthly auto payments

Q4 2022 CIIR Auto Loan Summary

Originations in Q3 2022 were down 9.8% YoY to 6.6 million, representing the lowest seasonal volume since 2013. This has represented the second consecutive year that Q3, which typically represents the highest volume quarter in-year, has trailed Q2. However, in a sign that post-pandemic new vehicle supply shortages may be easing - for the first time since 2021 - new vehicles comprised more than 40% of vehicles financed in Q4 2022. Leasing, however, continues to lag. In Q4, leasing represented 20.9% of all new vehicle registrations, down from 24.7% in Q4 2021. Despite slight decreases in average amounts financed for both new and used cars, monthly payments continued to grow in Q4 2022, albeit more slowly than one year prior. Point-in-time serious account delinquency (60+ days past due) rates rose 13bps quarter over quarter to 1.78% in Q4 2022, which is slightly higher than the typical seasonal increase of ~7bps from Q3 to Q4. While new vintage performance shows stable performance, we are seeing some deterioration on used vehicle vintages when comparing to pre-pandemic cohorts.

Instant Analysis

"The fact that new vehicles made up more than 40% of all cars financed this quarter for the first time since the end of 2021 is a sign that the new vehicle inventories are improving from significant supply shortages earlier in the year. However, despite a decrease in the average amount financed for both used and new cars, inflation and rising interest rates continue to impact consumer affordability, with monthly payments for both new and used vehicles continuing to rise, albeit more slowly. While point-in-time delinquency rates continue to rise, context is important when reviewing auto delinquency figures. Recent vintages show deterioration for used vehicle financing while new financing performance remains stable."

- Satyan Merchant, senior vice president and automotive business leader at TransUnion

Q4 2022 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

**Data from S&P Global MobilityAutoCreditInsight, Q4 2022 data only for months of October & December

Click hereto view findings from our recent study, Trends in Auto Financing: The State of Leasing.

Credit Industry Indicator ticks down, driven by higher delinquencies and slowing credit demand

Q4 2022 Credit Industry Indicator Summary

TransUnion's Credit Industry Indicator (CII) fell to 110 in Q4 2022, a YoY drop of 5 points from the Q4 2021 reading and a sequential drop of 10 points from the previous quarter level in Q3 2022. The CII is a quarterly measure of depersonalized and aggregated consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors and credit performance metrics over time into a single indicator. Examples of data elements categorized into these four pillars include: new product openings, consumer credit scores, outstanding balances, payment behaviors, and 100+ othervariables. Increases in the CII level indicate overall positive trends in the health of the credit market.

The Q4 2022 decrease in the CII was largely driven by cooling demand for new credit, especially mortgages, and rising delinquencies across many product categories, particularly unsecured credit products, from the record lows seen in 2021. These factors offset the positive developments seen in the credit market, including continued growth in originations of new credit cards and unsecured personal loans, higher credit participation (number of consumers with access to credit) and overall balance growth across products. Despite the recent quarter dip, the CII remains well above levels seen at the height of the pandemic in 2020 and early 2021.

Instant Analysis

"While a single indicator number can't fully reflect all the complexities of the consumer credit market, the CII was developed to create an overall barometer of how the market is trending. The dip in the most recent quarter indicates that the market is starting to see some headwinds, particularly around delinquencies. However, the continued supply of new credit to consumers in recent quarters, especially at a time when many consumers are feeling the effects of high inflation levels, is one of several factors showing that, overall, the consumer credit market remains healthy."

- Charlie Wise, senior vice president and head of global research and consulting at TransUnion

For more information about the report, please register for the Q4 2022 Credit Industry Insight Report webinar.

Public link

Please use the above public link if you want to share this noodl on another website.