- 2020 is looking like a year of wild cards that already have started.
- Housing was one of the brightest sectors in the 2019 U.S. economy.
We are three full weeks into 2020, the year of wild cards. Concern about Iran has now been replaced by the coronavirus spreading from China. While the impeachment trial continued here, the U.K. cleared the final legal hurdle for Brexit to happen Friday, and, while in Davos, President Trump threatened the EU with tariffs on autos and parts unless they negotiate a trade deal and cooperate with containing Iran.
Enough of the bad things, let’s focus on one of the best.
Housing: Housing was one of the best sectors for the U.S. economy in 2019. Existing home sales ended the year at a strong pace – the best in existing home sales SAAR in almost two years, but the existing home market is running out of supply. Sales increased 3.6% after a decline of 1.7% in November. With the improvement in December, sales were up 10.8% year over year. Thankfully new construction continues to increase and is at the best level for the decade. We will likely see a solid increase in new home sales for December when it is reported on this week.
Consumer credit: Consumer credit performance trends are mixed. The auto loan default rate remained steady at 1.02%. Auto defaults are flat year over year. Bank and credit union defaults were down y/y in December, but defaults were up for captive finance companies and dealer finance companies. We continue to see worsening severe delinquencies in auto loans with the subprime delinquency rate at a new record.
However, we are not yet seeing delinquencies convert into a rising aggregate default rate or higher repossession rate. Higher risk premiums compensate for the higher risk but result in high subprime auto loan rates that make most new vehicle loan payments unworkable.
Next week we will get new home sales, pending home sales, and personal income and spending data for December, January consumer confidence, the first estimate for fourth quarter GDP, and the Fed will have the first meeting and rate policy decision for the year. The Fed is expected to leave rates unchanged.