The New York Fed's Microeconomic Data Center released its quarterly report on household debt and credit for the fourth quarter of 2023 this morning. Household debt balances increased by $212 billion last quarter. Most types of loans saw increases, but they were modest compared to the fourth-quarter changes seen in past years. Mortgage loan balances increased by $112 billion, and home equity line of credit (HELOC) balances increased by $11 billion as borrowers used the equity in their homes instead of refinancing their first mortgages. Credit card balances, which typically see large increases in the fourth quarter coinciding with holiday spending, increased by $50 billion, 14.5% higher than in the fourth quarter of 2022. Auto loan balances increased by $12 billion from the previous quarter, continuing a steady growth spurt since 2011. In this article, we revisit our analysis of credit cards and examine which groups are struggling to make their auto loan payments. The quarterly report and this analysis are based on the New York Fed Consumer Credit Panel (CCP), a panel derived from Equifax credit reports.
The pandemic inflationary period saw the most pronounced and sustained price increases for automobiles as supply chains and semiconductor shortages limited production. During this period, auto loan balances ballooned. The average auto loan amount, or borrowing amount, rose slowly at less than 1% per year from 2015 to 2020, reaching about $18,000 in the first quarter of 2020. But as auto prices soared in 2021 and 2022, the average newly originated auto loan amount also jumped, increasing by 11% by 2021 and another 10% in 2022. By the end of 2022, the average auto loan amount was about $24,000. But last year, both prices and average auto loan amounts began to fall. The chart below shows how the average loan amount has tracked auto prices, using the Consumer Price Index (CPI) for new and used cars in blue and red, respectively, and the average loan amount in gold.
Loan amounts roughly track changes in auto prices
Percentage change in loan volume since 2018: Q2
Source: New York Fed Consumer Credit Panel/Equifax, Bureau of Labor Statistics.
Note: CPI is the Consumer Price Index.
During the pandemic, mortgage and federal student loan payment forbearance and stimulus checks helped push household debt delinquency rates to record lows. But as forbearance ends for many households and stimulus savings dry up, delinquency rates are rising again for all types of debt. The chart below shows the percentage of auto loan balances that have newly moved into delinquency. New delinquencies have been particularly bad for both auto loans and credit cards, with transition rates now exceeding pre-pandemic levels. [Note that the subsequent analysis uses a loan-level data set drawn from the Consumer Credit Panel by the Philadelphia Fed. While similar to the individual-level data used for the Quarterly Report, this alternative loan-level data permits finer analysis by vintage and loan origination amount. Due to some different inclusion criteria, aggregates from tradeline data may differ slightly from those in the Quarterly Report.]
Auto loan delinquency migration rates exceed pre-pandemic levels
Percentage of balances that have moved to delinquent status
Source: New York Fed Consumer Credit Panel/Equifax using Philadelphia Fed auto loan transaction data.
Note: This chart shows migration rates to 30-day delinquency and rates are balance-weighted.
Who is driving up delinquency?
Now let’s look at delinquency rates by different borrower characteristics. In the next graph, we look at delinquency rates by birth generation. Delinquency rates tend to decrease with age, with younger generations having slightly higher delinquency rates than their predecessors. In our recent post on credit cards, we saw that delinquency rates for Millennials (born 1980-1994) have deteriorated faster than other generations. The same is true for auto loans, although the disparity here is less pronounced. Over the past two years, delinquency transition rates have skyrocketed for all generations, with Millennials and Baby Boomers (born 1946-1964) now above pre-pandemic levels. Note that the data in the next two graphs, unlike the previous one, is annualized using four-quarter rolling totals to account for seasonal trends.
Delinquency transition rates for Baby Boomers and Millennials exceed pre-pandemic levels
Percentage of balances that have moved to delinquent status
Source: New York Fed Consumer Credit Panel/Equifax using Philadelphia Fed auto loan transaction data.
Notes: This chart shows transition rates to 30-day delinquency and the rates are balance weighted. Data is annualized as a 4-quarter rolling total to account for seasonal trends. Borrowers are grouped by generation based on birth year: Baby Boomers are those born between 1946 and 1964, Gen X are those born between 1965 and 1979, Millennials are those born between 1980 and 1994, and Gen Z are those born between 1995 and 2011.
Below we show the evolution of auto loan delinquency rates by average income by ZIP code, as measured by average adjusted gross income derived from the Internal Revenue Service (IRS) income statistics: While delinquency rates are now slightly above pre-pandemic levels in all income regions, the increase is most pronounced for borrowers in the lowest income regions, shown as the light blue line.
Delinquency rates rise most among low-income borrowers
Percentage of balances that have moved to delinquent status
Source: New York Fed Consumer Credit Panel/Equifax, IRS Income Statistics.
Notes: This graph shows transition rates to 30-day delinquency and the rates are balance weighted. Data is annualized as a four-quarter rolling total to account for seasonal trends. Borrowers are categorized into income quartiles by ranking ZIP codes by median income from lowest to highest and then dividing the ZIP codes into four equal groups by population.
The graph below shows the average monthly payments for newly opened auto loans by zip code income for the quarter. Interestingly, the average monthly payments are nominally very similar across income tracts, except for the highest income quartile. Auto loan payments originating since the fourth quarter of 2019 have similarly surged across all tracts. However, the increase in monthly payments for newly opened loans in the lowest income quartile imposes a much larger burden as a percentage of income than faced by the highest income group. The trend in loan amounts by tract income (not shown) is similar to that in average payments. However, note that the decrease in average loan balances in recent quarters shown in the first graph is not reflected in the average scheduled payments. This diverging pattern of loan amounts and monthly payments over the past year can be explained by the increase in auto loan interest rates.
New auto loan payments surge
Average Monthly Payment (USD)
Source: New York Fed Consumer Credit Panel/Equifax, IRS Income Statistics.
Note: Borrowers are classified into income quartiles by ranking zip codes' median income from lowest to highest and then dividing the zip codes into four equally sized groups by population.
Conclusion
Delinquency rates for most types of credit are rising after reaching very low levels in 2021 as pandemic policy support wears off. Focusing on auto loans, delinquency migration rates are above pre-pandemic levels, and the deterioration appears widespread. Loans closed in 2022 and 2023 have performed worse so far than loans closed in prior years. This is likely because buyers in those years faced higher vehicle prices and were forced to borrow more at higher interest rates. Rising migration rates are worth monitoring in the coming months, especially given the amplified plight of borrowers in low-income areas.
Chart Data
Andrew F. Haughout is director of household and public policy research in the Research and Statistics Group at the Federal Reserve Bank of New York.
Donghoon Lee is an economic research advisor for consumer behavior research in the Research and Statistics Group at the Federal Reserve Bank of New York.
Daniel Mangrum is a research economist in the Equitable Growth Study in the Research and Statistics Group at the Federal Reserve Bank of New York.
Joel Scali is a principal in regional economics in the Research and Statistics Group at the Federal Reserve Bank of New York.
Wilbert van der Klaauw is an economic research advisor for household and public policy studies in the Research and Statistics Group at the Federal Reserve Bank of New York.
Crystal Wang is a research analyst in the Research and Statistics Group at the Federal Reserve Bank of New York.
How to cite this post:
Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, Wilbert van der Klaauw, and Crystal Wang, “Auto Loan Delinquency Revs Up as Car Prices Stress Budgets,” Federal Reserve Bank of New York, Liberty Street Economics, February 6, 2024, https://libertystreeteconomics.newyorkfed.org/2024/02/auto-loan-delinquency-revs-up-as-car-prices-stress-budgets/.
Disclaimer
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the sole responsibility of the authors.