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Smoke on Cars

Auto Market Weekly Summary

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Article Highlights

  1. Low mortgage rates drive strong housing market.
  2. Despite higher defaults and delinquencies, credit still flows as loan performance is strong, risk managed.
  3. Federal Reserve suggests rate policy to hold steady.

Housing continues to support growth in the U.S. economy, and consumer credit continues to flow as the Federal Reserve suggests interest rates will remain stable.

Housing strong: With mortgage rates again approaching all-time lows, demand for housing is high, but supply is tight. Existing homes are appreciating much more than normal, which encourages more new construction. Permits are up nearly 18% over last year. Strong housing and construction historically have correlated with robust pickup truck sales.

Credit still flows: Consumer credit default trends diverged in January, with credit card defaults rising but not as high as last year, mortgage defaults increasing and reaching a multi-year high, and auto defaults moving down slightly. As reported last week, even though the delinquency rate on subprime auto loans is at an all-time high, the delinquencies are not translating into defaults. Credit is still flowing as loan performance is strong and risk is being compensated. The average “best available” 60-month new vehicle loan rate according to Bankrate.com was 4.66% last week, which was effectively unchanged from the end of December.

Fed policy steady: The Fed is determined to keep rate policy where it ended 2019, but the financial market sees rates drifting lower. Coronavirus (aka, COVID-19) has become a more significant concern for the global economy and is the primary reason behind longer term rates heading toward 12-month lows. We are getting close to all-time lows for some tenors of bonds.

Looking ahead: This week we will get new and pending home sales data and personal income and spending data for January as well as consumer confidence and sentiment for February.

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