Chicago,
12
December
2019
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12:00 PM
America/Chicago

U.S. Consumers Expected to Maintain Strong Credit Activity in 2020

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TransUnion forecasts trends for auto, credit card, mortgage and unsecured personal loans

The U.S. consumer is expected to perform well once more in 2020, marking one of the longest periods of sustained positive credit activity in recent decades. TransUnion’s (NYSE: TRU) 2020 consumer credit forecast projects serious delinquency rates will either decline or remain about the same for auto loans, credit cards, mortgages and unsecured personal loans.

Both balance and originations activity are also expected to grow for most key credit products. This strong activity is buoyed by low unemployment rates, continued growth in GDP and high consumer confidence. The U.S. consumer credit market has now grown every year since the Great Recession concluded in 2009, marking one of the longest economic expansions in U.S. history.

 

 

 

“The U.S. consumer is as strong as ever, and TransUnion expects more of the same in 2020,” said Matt Komos, vice president of research and consulting for TransUnion’s financial services business unit. “More consumers are securing loans and increasing their balances in a measured manner, all while maintaining historically low delinquency levels. Low unemployment rates, continued wage growth and an overall sound economy are making this positive performance hold true. As it’s anticipated that these positive economic trends will continue in 2020, TransUnion expects the healthy consumer credit market to continue in 2020 as well.”

Five-Year Trend Shows Serious Consumer Delinquency Levels Continue to Remain Low**

Credit Product

Q4 2020*

Q4 2019*

Q4 2018

Q4 2017

Q4 2016

Auto Loans

1.44%

1.47%

1.44%

1.43%

1.44%

Credit Cards

2.01%

1.99%

1.94%

1.87%

1.79%

Mortgage Loans

1.47%

1.54%

1.66%

1.86%

2.28%

Unsecured Personal Loans

3.04%

3.31%

3.63%

3.29%

3.83%

*Projections; **Serious mortgage, auto loan and personal loan delinquencies are defined here as those with payments 60 or more days past due. Serious credit card delinquencies are defined as those with payments 90 or more days past due.

Delinquency rates are expected to perform well even as recent vintages of loans have performed worse than previous years. For instance, credit cards originated in 2018 have a delinquency rate of 5.4% nine months after origination compared to 4.49% for those originated in 2017. “As our forecast suggests, credit cards are the one product that will see a slight uptick in delinquency rates. However, the overall rate of credit card delinquency is still expected to remain relatively low and much lower than what was seen during the last recession,” said Komos.

In addition to the strong economy, delinquency rates have remained relatively low partly because lenders have maintained a balanced approach in their loan offerings. For instance, the share of non-prime borrower originations is expected to remain relatively steady for most credit products – much lower than what was observed a decade ago.

Little Change in Share of Non-Prime Originations Expected, but Lower than a Decade Ago

Credit Product

2020*

2019*

2018

Start of the Recession -- 2007

Auto Loans

34%

33%

34%

41%

Credit Cards

39%

38%

38%

44%

Mortgage Loans

19%

17%

17%

28%

Unsecured Personal Loans

63%

64%

64%

68%

*Projections

Total balances for all major credit products are also expected to increase for each credit product. Unsecured personal loans are expected to grow 11% followed by credit cards (3%), mortgage loans (3%) and auto loans (3%).

TransUnion’s forecasts are based on various economic assumptions, such as gross domestic product, home prices, personal disposable income and unemployment rates. The forecasts could change if there are unanticipated shocks to the economy, such as if home prices unexpectedly fall. Better-than-expected improvements in the economy, such as greater than expected increases in GDP and disposable income, could also impact these forecasts.

For more information about the 2020 TransUnion forecast and to register for a webinar providing detailed projections, please click here.

 

TransUnion Forecast: Four Trends to Watch for in 2020

Trend #1: Credit Card Performance to Remain Strong as Delinquency Rates Flatten

Performance in the credit card market is expected to remain strong throughout 2020. The Q4 2020 delinquency rate is expected to flatten at 2.01%, a slight uptick from the projected 90+DPD rate of 1.99% in Q4 2019. As delinquencies flatten the average consumer balance is expected to grow, albeit at a slower rate than last year. Average balances are expected to increase 0.8% year-over-year in Q4 2020 versus 0.9% over the same period in 2019. Total credit card balances are expected to rise around 4% and finish 2020 at $864 billion.

Instant Analysis

“Originations in the credit card market are expected to slow in 2020, with the majority of growth coming from the non-prime risk tiers. However, this increase in non-prime activity is not expected to impact card performance as our projections have the delinquency rate staying under 2% – well below post-recessionary levels. We anticipate that the credit card market will be well-positioned from both a performance and growth standpoint as card issuers balance risk across their portfolios.”

  • Paul Siegfried, senior vice president and TransUnion’s credit card line of business leader

 

Trend #2: Growth in Personal Loans Will Stabilize as Market Matures

Unsecured personal loan originations will continue to grow in 2020, but at a more sustainable rate compared to recent years. In Q1 2019 originations grew by 8.4% year-over-year – a much slower rate compared to the 24.5% growth experienced in the same quarter the previous year. In Q1 2020, originations are expected continue to grow approximately 6% compared to Q1 2019. The origination mix will continue to shift toward lower-risk consumers as lenders grow their prime and above books faster than their subprime books. 2020 origination growth will normalize at mid-single digit growth rates with prime and above hovering around an 8% rate of growth the first half of the year and leveling off at low single digits in the second half, while subprime will end the year flat over Q4 2019.

Instant Analysis

“Loan volumes will remain at healthy levels, as consumers continue to find these loans to be a valuable addition to their wallets. Debt consolidation will continue to drive the lion’s share of the volume, but as lenders grow faster in the prime and above risk tiers, the home improvement use case will grow as well. This will lead to higher loan amounts, with total balances expected to reach a high of $180 billion. As lenders continue to shift slowly up market, delinquencies will continue to remain relatively low and stay around 3%. While this may be reflective of the loan mix, it also may reflect our findings that personal loans that are used for debt consolidation tend to perform well as consumers gain more control over their finances.”

  • Liz Pagel, senior vice president and TransUnion’s consumer lending line of business leader

 

Trend #3: Auto Lenders Continue Steady Pace Despite Market Headwinds

The issues surrounding auto affordability will continue to persist in the coming year, which will lead to a decline in new auto sales. Average auto balances are expected to grow 1.6% year-over-year in Q4 2020, a slightly slower rate of growth than what was observed in Q4 2019 (1.9%). Certain segments of consumers may look to offset these rising costs by opting for extended loan terms, a recent trend taking place in the market. Auto originations will flatten relative to 2018, and the share of originations in the prime and above risk tier will remain steady at 66.5%.

Instant Analysis

“The growth pattern of new auto sales will remain concentrated toward prime and above consumers, while the overall growth curve will flatten in 2020 due to declining new vehicle sales. External pressures such as higher gas prices and the looming threat of auto tariffs, combined with rising vehicle prices, are all contributing to the concern of auto affordability. Despite these headwinds, loan performance in the auto industry remains strong. We expect the auto delinquency rate to decrease at a higher rate on a year-over-year basis during the first half of 2020, and serious delinquencies are expected to slightly decline by the end of next year.”

  • Satyan Merchant, senior vice president and TransUnion’s auto line of business leader

 

Trend #4: First-Time Homebuyers Expected to Lead Mortgage Activity

The affordability concerns of the last few years may start to diminish in 2020. While home prices are expected to continue an upward trend, the rate of such increases are slowing. This will create opportunities for a segment where demand is outpacing affordable supply: first-time homebuyers. Overall originations are expected to drop relative to 2019, but first-time homebuyers will hit the market in a big way to help offset some of the declining growth.

Instant Analysis

“Mortgage has remained a largely prime and above product since the recession and as such, we have recently seen historical lows in regard to delinquency. The serious delinquency rate in 2020 is expected to follow this trend and remain under 1.5%. Additionally, the combination of low unemployment, rising wages, low interest rates, and slowing home price appreciation will help affordability. This is especially true for first-time homebuyers, who we anticipate driving significant growth over the next three years.”

  • Joe Mellman, senior vice president and TransUnion’s mortgage line of business leader

 

For more information about the 2020 TransUnion forecast and to register for a webinar providing detailed projections and information on the quarterly Industry Insights Report, please click here.

 

About TransUnion (NYSE: TRU)

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Europe, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.

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