Total outstanding auto debt in the U.S. surpassed $1 trillion
for the first time in the second quarter, powering the sector into
the upper tiers of household debt.
With the recession now six years behind, in the nation's
rearview mirror, lending for automobiles has sharply accelerated:
Around $119 billion in auto loans were originated in the second
quarter of this year, a 10-year high, according to figures from the
Federal Reserve Bank of New York released Thursday.
Auto lending has climbed steadily during the past four years,
helping sales of U.S. autos and light trucks completely recover
their losses from the recession. In May, consumers purchased
vehicles at an annual pace of 17.6 million, the highest since June
2005.
Americans have now racked up more than $1 trillion in both
auto-loan debt and student-loan debt, which surpassed $1 trillion
for the first time in 2013. The overall indebtedness of U.S.
borrowers remains lower than before the recession, owing to
declines in housing and credit card balances. Outstanding balances
for mortgages and home-equity lines of credit dropped by $66
billion in the second quarter.
Auto lending and credit-card lending used to trade spaces as the
second- and third-largest categories of U.S. household debt, after
mortgages. Both were surpassed by student loans in 2010. Since
2011, auto loans have rapidly outgrown credit cards. Today,
household credit-card balances stand at $703 billion, about the
same as four years ago.
Auto lending and mortgages offered a study in contrast over the
past five years. Both types of debt fell in the recession—from 2008
to 2010 the total stock of auto loans declined by more than $100
billion. Mortgage balances dropped by more than $800 billion.
"There was some tightening in auto loan standards after the
financial crisis, but by many measures it's returned basically to
where it was prerecession," said Wilbert van der Klauw, a New York
Fed economist. "That's quite a contrast to mortgage underwriting,
which remains significantly tighter than before the recession."
In the aftermath of the financial crisis, borrowers with low
credit scores saw mortgage availability dry up. In 2006, nearly
$650 billion in loans were originated to people with credit scores
below 660. Since 2010, such originations have been below $150
billion, according to new data released by the New York Fed showing
the credit scores of those who obtain mortgages.
Borrowers with low credit, also known as subprime borrowers,
initially were taking out far fewer auto loans, too. But beginning
in 2010, auto lending began to rise for people of all credit
scores, returning to a similar mix of high- and low-credit score
borrowers as before the recession. Auto loans climbed to new highs
while mortgage lending.
Auto and housing loans have one thing in common: delinquency
rates near the lowest levels in years. The survey found that 95,000
people in the U.S. had a foreclosure notation added to their credit
reports—the fewest in the 16 years of available records. Borrowers
more than 90-days behind on their mortgage fell to just 2.5% in the
second quarter, the lowest since 2007. The share of similarly
delinquent auto borrowers has been a bit over 3% since 2013. That
figure was little changed at 3.4% in the second quarter.
The benefits of the auto lending boom have been clear at Ford
Motor Co. and General Motors Co. Last month, Ford reported $1.9
billion in net profit during the quarter, a 44% increase from the
same quarter a year ago, with strength in the U.S. offsetting
weakness in China and Europe. GM earned $1.2 billion, up from just
$278 million a year ago.
The overall stock of debt was little changed over the past three
months, as the decline in housing offset increases in auto loans
and credit cards. Credit-card balances rose by $19 billion.
Student loans were also little changed, as the academic calendar
doesn't necessitate many loans in the spring. The figures aren't
seasonally adjusted. The New York Fed's survey of household debt
and credit is obtained from a sample of anonymized data from the
credit-reporting firm Equifax.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
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