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Americans With Best Credit In Decades Drive U.s. Economy

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http://www.bloomberg.com/news/2013-08-05/americans-with-best-credit-in-decades-drive-u-s-economy.html

Americans have made progress putting their finances in order and are ready to borrow again -- giving the world’s largest economy another driver of spending and growth.

Household net worth soared to a record high in the first quarter, Federal Reserve data show, and the financial-obligations ratio relating consumer debt to income matched the lowest in 33 years. Consumer loans are rising, and the American Bankers Association reports the share of delinquencies on bank cards is the smallest since 1990.

“Household finances are in the best shape in decades,” said Joseph Carson, director of global economic research at AllianceBernstein LP in New York, with $435 billion in assets under management. “We now have a creditworthy borrower. It’s a powerful ingredient” for the U.S. expansion and “definitely a step up from where we have been.”

Credit is thawing gradually for residential mortgages, one reason new-home purchases in June reached the highest since 2008. Lenders also are easing standards for auto loans to expand the pool of buyers and drum up more business. That has put car sales on track for the best pace since 2007, helping companies including General Motors Co. (GM), Ford Motor Co. (F) and parts maker Lear Corp. (LEA) to report better-than-estimated earnings.

But how many of these auto loans are for the whole value of the car, rather than just a nice little rental figure for a few years and then you give the car back or pay out large figure at the end?

Plus if your "easing" standards how did that work out last time? Did it crash the fecking banking system, so clearly it's prudent to do the same again. This appears to be beating Galbriath's idea that financial Euphoria gets repeated every 10 or 20 years, selective memory has failed after just 5 or 6 years. We truly have progressed.

Debtalism can now create more growth...

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http://www.bloomberg.com/news/2013-08-05/americans-with-best-credit-in-decades-drive-u-s-economy.html

But how many of these auto loans are for the whole value of the car, rather than just a nice little rental figure for a few years and then you give the car back or pay out large figure at the end?

Plus if your "easing" standards how did that work out last time? Did it crash the fecking banking system, so clearly it's prudent to do the same again. This appears to be beating Galbriath's idea that financial Euphoria gets repeated every 10 or 20 years, selective memory has failed after just 5 or 6 years. We truly have progressed.

Debtalism can now create more growth...

US subprime auto loans are big business now, and increasingly it seems the UK is following suit. Zugzwang & others has produced good info on this phenomenon e.g Jeffrey's car purchase:

http://uk.reuters.com/article/2013/04/03/us-usa-qe3-subprimeauto-special-report-idUSBRE9320ES20130403

Here's an article from June showing subprime levels climbing, and prime standards slipping:

http://www.ibtimes.com/sub-prime-auto-loans-repos-defaults-are-analysts-shrug-notion-auto-lending-bubble-1296857

The U.S. auto market is booming and at its current rate has a good shot at hitting pre-recession new-vehicle sales levels by next year, but jobs creation is moderate and overall U.S. economic growth is coming in this year at under 2 percent, which is not great.

Meanwhile, subprime auto financing (auto loans to car buyers who pay more for their financing because they are more likely to default on payments) is rising.

sub-prime-auto-lending-graphic.jpg

Check out this chart. It shows that subprime lending is just 1 percentage point lower than it was in 2008 at the start of the auto industry crisis even as the average prime-lending credit score is almost back to 2008 levels. That means that it’s easier now to get approved for a regular auto loan but the demand from borrowers with credit scores lower than ideal has been increasing at the same time.

Vehicle repossessions in the first quarter increase nearly 17 percent compare to the same period last year, according to auto sector intelligence provider Experian Automotive, while the average charge-off for bad loans -- that’s how much a lender has to write off on borrowers whose appetite for debt was higher than their ability to pay it -- rose by $600 to $7,401.

So is the auto market in a lending bubble similar to housing? Probably not, at least not yet.

One reason is simple: Most Americans need their cars to get to work and will cut back on a lot of expenses in order to stay current with their car payments. About 85 percent of all vehicle purchases are financed.

“During the economic downturn we saw that people were more willing to foreclose on their houses than default on their auto loans, because they’re saying ‘I gotta drive to work,’” Eric Lyman, who specializes in auto resale valuation for automotive pricing and information provider TrueCar Inc., told the International Business Times. “You have this urban sprawl that was part of the housing bubble that has caused people to be living quite a distance from their places of employment.”

Another reason for the relative lack of concern about the rise in subprime lending and repos: the tight used car market. The economic downturn sent car buyers to the used car lots, which pushed prices to near-record highs in 2010, said Lyman. Lenders take this into consideration, because higher used car prices means they can recover more of their loans in the secondary markets.

But used car prices are starting to come down, especially because higher-than-average leases expirations are taking place this year, which will flood the auctions with lots of relatively attractive used car deals. Recent comments by Federal Reserve Chairman Ben Bernanke suggesting interest rates may start rising in the near future could help boost subprime lending, as well as push down new vehicle purchases.

“I would say that’s something we should definitely keep an eye on. As we know a big portion of the growth in sales we’re seeing is related to the fact that there’s 0 percent financing available; even subprime borrowers can get away with 3 to 4 percent on a loan on a new car,” Alec Gutierrez, senior market analysts for automotive pricing company Kelley Blue Book Co. Inc., told IBTimes. “I’m not too concerned with repos at the moment. Although lenders are starting to bring in more subprime borrowers, repos still remain relatively low. But if subprime borrowers continue to make up more of the lending pool even as interest rates increase, then I would worry about it a little more.”

Edited by cheeznbreed

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US subprime auto loans are big business now, and increasingly it seems the UK is following suit. Zugzwang & others has produced good info on this phenomenon e.g Jeffrey's car purchase:

http://uk.reuters.com/article/2013/04/03/us-usa-qe3-subprimeauto-special-report-idUSBRE9320ES20130403

Lenders like Exeter have rushed to meet that demand. Backed by Wall Street banks and big private-equity firms, they have been selling ever-greater amounts of subprime auto loans in the form of relatively high-yield securities and using the proceeds to fund even more lending to more subprime borrowers.

Isn't that a Ponzi scheme? Which when it goes into reverse will bankrupt everyone that's been involved?

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Isn't that a Ponzi scheme? Which when it goes into reverse will bankrupt everyone that's been involved?

.. apart from the people who made the loans using other people's money, and were smart enough not to leave a paper trail..

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Lenders also are easing standards for auto loans to expand the pool of buyers and drum up more business. That has put car sales on track for the best pace since 2007, helping companies including General Motors Co. (GM), Ford Motor Co. (F) and parts maker Lear Corp. (LEA) to report better-than-estimated earnings.
Tue Aug 6, 2013 12:08am EDT

(Reuters) - Cars and trucks on U.S. roads average 11.4 years in age, the oldest on record since research and consulting firm Polk began to keep track of vehicle age in 1995, Polk said on Tuesday.

http://www.reuters.com/article/2013/08/06/us-autos-age-polk-idUSBRE97503V20130806

An auto-parts company in the story content, for sign they'll be supplying more parts for drivers to keep their vehicles on the road. Although no doubt dealerships wanting these older car owners to buy to replace their ageing vehicles, which at some point many more owners will probably be forced to do out of necessity. If they decide to keep a vehicle, or can afford to.

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If household finances are in better shape why do lenders need to lower standards.

Next, you'll be claiming that the Emperor's new clothes don't exist.

(The last kid who tried that was dragged off and has spent the last 30 years cleaning the palace bogs. Don't believe the fairy tales..)

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If household finances are in better shape why do lenders need to lower standards.

Clearly you don't understand modern economic thinking and how high finance works. I would suggest reading some books but clearly it would be lost on you or you'd think of some other smart ar$e problem....

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If household finances are in better shape why do lenders need to lower standards.

Sir, I have no desire to be rude, but clearly you have not studied dark arts at the school of financial wizardry.

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This won't be a problem- if the debt burden gets too high the Central Banks will simply lower interest rates.....oh hang on... :lol:

If you offered the consumer a negative rate interest loan I'm sure there'd be a huge upswing in those willing to take on debt.

Offer me a fixed deal and I'd quite happily borrow money.

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