Uh-oh: auto loan delinquencies hit a new high

February 21, 2017

Economists aren't typically known for their unbridled optimism. They tend to be a cautious lot, who seem most anxious when the markets are doing well. They trade nervous glances waiting for something to go wrong.

Has something gone wrong? Maybe so: the Federal Reserve Bank of New York has confirmed that auto loan delinquencies are at their highest levels since the chaotic days of the Great Recession.

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That sound you hear is thousands of economists exhaling.

How many auto loans are currently in arrears? Car loans delinquent by 30 days or more now total $23.27 billion. The last time America saw stats that high was in the third quarter of 2008, when the total was slightly higher: $23.46.

Loans classified as seriously delinquent--overdue by 90 days or more--now total $8.24 billion. That's not so alarming, though: a higher figure was posted just last year, in the third quarter of 2016.

Reality check

So, do economists have something to gloat about?

Yes and no.

Any time delinquencies hit new highs, there's cause for concern, and today is no exception.

However, several factors suggest that current numbers aren't quite as bad as they seem.

For starters, loan delinquencies have been hovering near historic lows. An uptick more or less puts them back in "normal" territory.

Also, as the Federal Reserve Bank of New York explains, today's delinquencies look a lot different than they did in 2008:

"In the third quarter of 2008, 8.5 percent of total household debt was delinquent, compared with the current quarter’s 4.8 percent mentioned above; the serious delinquency rate was 5.1 percent, compared with today’s 3.3 percent. The delinquency trends are also quite different: delinquency rates continued to deteriorate significantly after the third quarter of 2008, with serious delinquency reaching 8.7 percent of outstanding balances in 2010. Today, delinquency has been relatively steady at low levels. Other measures of payment distress, like the rate at which mortgage debts transition into delinquency, are even lower relative to the pre-recession period."

Translation: auto loan delinquencies are creeping upward, but the more important figure to watch is overall household delinquencies, especially with regard to mortgages. On that front, delinquency rates are actually quite low and holding steady.

Sorry, economist pals. Don't worry, though: as you know all too well, your day will come. 

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