Auto Market Weekly Summary

The peak in daily new COVID-19 cases was five weeks ago, and now hospitalizations and deaths are declining as well. The jobs recovery continues, but the country still has 14.8 million on unemployment benefits. Consumer sentiment has also been slowly improving for the last three weeks.

New construction and existing home sales are now up year over year as low mortgage rates and increasing demand for single family and second homes drive home sales to 14-year highs. Credit is another area that has performed well so far, but likely will deteriorate now with less fiscal support for consumers and especially the unemployed.

Auto loan delinquencies: Auto loan delinquency rates fell again in July, but the improvement is likely a function of loan accommodations, which were reported by Equifax to be 7.9% of auto loans by the end of July. Accommodation prevents loans from falling into severe delinquency status or end because of bankruptcy or default. Our analysis of Equifax auto loan performance data indicates that 1.24% of auto loans were severely delinquent in July, while 4.37% of subprime loans were severely delinquent. The delinquency rates were the lowest in 15 months.

Wholesale prices up but growth is slowing: The Manheim Index increased 3.4% comparing the first 15 days of August to the month of July. This brought the Index to 163.4, which is up 15.6% from August 2019. Recovered wholesale demand combined with lower supply continues to send prices higher, but the pace of appreciation is slowing. Our leading indicators of price movement suggest that the price appreciation trend is almost over.

Consumer sentiment improves: The index of consumer sentiment from Morning Consult increased 1.1% this week. Sentiment is at its highest level in almost two months after three weeks of gains. The index is now down 22.4% since the end of February and down 18% year over year.

Jobless claims rise: Initial jobless claims were 1.1 million for the week ending August 8, which was an increase from the prior week’s 971,000. Continuing claims, which represent people who previously filed and were approved and remain on unemployment compensation, decreased to 14.844 million from 15.480 million. That represents 9.7% of February’s job total. Continuous claims declined by 636,000 from the prior week, bringing the three-week decline to 2.1 million. Continuing claims data lag a week behind initial claims, so next week may show less progress in continuing claims.

Housing is a bright spot: Residential construction increased strongly in July as the housing market continues to impress in this recovery. The seasonally adjusted annualized rate of starts increased 22.6% while permits increased 18.8%. Starts are now up 23.4% from last July. Permits are up 9.4% year over year. Permits lead starts, and the two are now even at a 1.495 million permitting pace against a 1.496 million starts pace, implying we won’t see further big increases for several months. Low mortgage rates and increased demand for single family homes and second homes have been helping new construction grow for several months, but the latest data also show improvement in multifamily as well.

Home sales jump: Existing home sales jumped in July after rebounding strongly in June. The existing home sales SAAR increased 24.7% in July to 5.86 million. The pace of existing home sales is now up 8.7% from a year ago and at the highest level since the end of 2006. Inventory declined 2.6% and was down 21.1% year over year. The months’ supply of homes for sale declined to 3.1 months, nearly half of what is considered normal. The median sales price accelerated to an 8.5% year-over-year gain.

Check back on Smoke on Cars tomorrow for a video that will include updated data.