One of the big three credit reporting agencies, TransUnion, came out with a report entitled, “The Industry Insights Report”, discussing trends in various industries during Q2 of 2014 as part of an ongoing quarterly analyses of credit-active U.S. consumers and how they are managing credit related to specific industries. The three industries covered in the report were the mortgage industry, the credit card industry, and the auto industry. The report included that on two out of three fronts, the delinquency rates continued to decline. The industry that experienced an increase in delinquencies in Q2 was the auto industry. The TransUnion website states,
“In Q2 2014, the national mortgage delinquency rate dropped once again to 3.46%. The credit card delinquency rate also declined to its lowest level – 1.16% – since TransUnion began tracking this variable. Auto loan delinquency rose on a year-over-year basis to 0.95%. However, the auto loan delinquency rate remains below the Q2 average of 1.05% observed between 2007 and 2014.”
TransUnion defined delinquency on a mortgage payment as well as delinquency on an auto loan as 60 or more days overdue, and credit card delinquency as 90 or more days overdue. The national mortgage delinquency rate officially declined for the tenth consecutive quarter. This is depicted in the figure below:
The figure clearly shows the delinquency rates at their peak in Q3 and Q4 of 2011. This peak also marks an inflection point in the mortgage industry. From that point in the industry until Q4 of 2014, the rate of delinquency has been decreasing ever since. This could be due to two factors. The first factor potentially responsible for the inflection point is that the health of the economy is improving. The second factor potentially responsible for the inflection point depicted in the graph is that less Americans have become homeowners after the financial crisis. The two, however, are not mutually exclusive factors.
TransUnion also noted that the mortgage delinquency rate has dropped almost 20% just in the past year. An interesting finding in TransUnion’s study is also that millennials (adults below age 30) currently demonstrate the lowest delinquency rate of all of the age groups (Money Talks News). The young homeowners have also demonstrated the most substantial decrease in delinquency over the past year.
However, bear in mind that millennials do not necessarily make up as much of the market as the other age groups do. Not to mention the fact that total mortgage account volume has decreased over the recent years. See the figure below:
This graph is a clear depiction that less Americans have become homeowners since the financial crisis. TransUnion came out with a press release with regards to the study that it performed for Q2 of 2014. The press release stated, “Viewed one quarter in arrears (to ensure all accounts are reported and included in the data), new account originations dropped 51.1% from 2.2 million is Q1 2013 to 1.1 million in Q1 2014…The drop in mortgage account originations was dramatic. This resulted from a severe decline in refinance activity due to higher interest rates, compounded by unusually harsh weather conditions across large parts of the Country”. It is very possible that the decline in account originations so happens to be a result of circumstantial conditions such as the refinance boom, interest rates, and a polar vortex sweeping the U.S., and that account originations would have been higher in different circumstances, but the main question is if those factors are going to change in the near future. The refinance boom seems about over, but interest rates are climbing, and the United States may potentially be in for another long winter with the potential of hindering consumer desire to leave the house.
This point that less mortgage account originations have taken place this past year is further highlighted by the statistics provided by TransUnion, which take into account the homeowner age groups, and percentage of total the mortgage accounts seen above that these age groups represent, and the rate of delinquency observed in each age group. The data is as follows:
- Homeowners Under 30 Years Old
- Make Up 4.16 Percent of All Mortgage Accounts
- Observes a 2.34 Percent Delinquency Rate
- Homeowners Age 30-39 Years Old
- Make Up 17.53 Percent of All Mortgage Accounts
- Observes a 3.91 Percent Delinquency Rate
- Homeowners Age 40-49 Years Old
- Make Up 24.66 Percent of All Mortgage Accounts
- Observes a 4.43 Percent Delinquency Rate
- Homeowners Age 50-59 Years Old
- Make Up 27.06 Percent of All Mortgage Accounts
- Observes a 3.46 Percent Delinquency Rate
- Homeowners Age 60 and Older
- Make Up 26.30 Percent of All Mortgage Accounts
- Observes a 2.58 Percent Delinquency Rate
The data shows that homeowners age 50-59 hold the largest percentage of all mortgage accounts at 27.06 percent, but only the third highest delinquency rate out of all of the age groups, at 3.46 percent. Homeowners age 40-49 exhibited that highest delinquency rate of all age groups, at 4.43 percent, and the third largest percentage of all mortgage accounts, at 24.66 percent.
Something else to consider is that a lot of the foreclosures that came out of the recession have already finished running their course, as in they have been delinquent for some time and the foreclosures have been completed for the most part, so many of the foreclosed upon properties have thus been filtered out of the statistics. Another important point is that the barrier of entry to get a loan is much harder to bypass as a result of the financial crisis and heavy regulation on the industry. Borrowers must have higher credit, income, and overall be better financially qualified than they previously were required to be. These points are all important to take into account when observing such significant differences in the data amongst the different age groups. Job availability and income growth are also crucial to boost the housing market.