Delinquency Improvements Due to Jobs and Housing; More Work to be Done

The second consecutive quarter of broad-based decline in consumer delinquencies is very positive news. It shows that consumers are managing their finances better and that banks are exercising a very prudent approach in realizing losses and extending sound credit. It’s also a strong indication that the economy is on an upswing.

Consumers are doing better. They’re taking on less debt, they’re saving more, and they’re building up a little buffer, which is extremely important in these uncertain economic times. Consumers are being sensitive to the debt that they’ve taken on and they’re trying to lower that debt as best they can.

There are a couple of factors that have played prominently in this report. Jobs are the most critical factor in determining consumer credit delinquencies, and we’ve had a horrible string of job losses over the last 18 months. We’ve finally started to see some improvement in new jobs created, but it won’t be until we see a steady increase in jobs that we’ll see delinquencies come down from the levels we’ve had over the last year or so.

Housing continues to struggle, and we did see home equity loans with a fixed repayment increase to record levels. The very good news, though, is that home equity lines of credit fell quite dramatically. This is the first sign of spring in a horrible winter for the housing market.