The default rate on first-lien mortgages in November was 0.82%, up one basis point from October, according to the S&P/Experian consumer credit default indices.
In addition to the default rate on first mortgages, the report also looks at the bank card default rate and the auto loan default rate – both of which increased for the month. The composite default rate, which includes all three, was 0.97% in November, up three basis points from the previous month.
“November was the second consecutive month when default rates rose across all types of consumer credit,” says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a release. “While two months isn’t long enough to establish a turning point or a new trend, the consumers’ financial condition should be watched going forward. Consumer spending has been a key source of growth for the economy.
“However, other factors do not suggest any cause for concern over consumer credit defaults: Inflation remains low and expectations of future inflation are low and stable, the labor market continues to improve, and wages – long dormant – may be turning upward,” Blitzer says. “Continued weakness in oil prices is adding to disposable income. Finally, the recent increases are small compared with past moves and are well within a range of random monthly shifts.
Blitzers adds that the Federal Reserve’s decision to start raising interest rates “is not expected to impact most borrowing costs.”
“First, this may be one of the most widely anticipated adjustments to Fed policy in decades,” he says. “Second, the interest rates faced by consumers – mortgages, credit cards or auto loans – are set administratively rather than driven by short-term money market movements. Some adjustment in mortgage rates could be seen over the next several months if the yield on 10-year Treasury notes advances. Auto loan rates are more likely to be influenced by auto sales, and credit card fees seldom respond to short-term developments. It will take much more than one Fed move to affect consumer borrowing costs.”