Auto Market Weekly Summary: June 26

Auto loan performance resumed deteriorating in May as delinquencies and defaults both increased for the first time in three months. The severe delinquency rate in May was the worst since at least 2006. The default rate rose to nearly what it was in 2019.

Existing home sales saw a small gain in May, but supply continues to limit what is possible. The limited existing home market creates opportunity in the new home market, which is seeing improving construction trends.

New residential construction improved in May. Some of the jump in housing starts is likely temporary, but the activity indicates that residential construction is stabilizing, if not improving again. 

The labor market is not as strong as it was a year ago, and new claims are increasing, but continuing claims remain low and do not represent significant stress in the labor market.

Auto Loan Performance Deteriorates to Pre-Pandemic Levels

Auto loan performance resumed deteriorating in May as the seasonal improvement to delinquencies and defaults delivered by tax refunds ended in April.

Loans that are delinquent by 60 days or more increased by 5.3% in May and were up 21.2% year-over-year. In May, 1.68% of auto loans were severely delinquent. That was up from April’s 1.60% rate and was the highest May rate dating back to at least 2006.

Of subprime loans, 6.48% were severely delinquent, up from 6.18% in April and the highest May severe delinquency rate dating back to at least 2006. The subprime severe delinquency rate was 113 basis points higher year-over-year, while the aggregate was 28 BPs higher.

The high delinquency rate has not been leading to a historically similar level of higher defaults, but defaults increased in May, leaving the default rate very close to what it was in 2019. Defaults of auto loans increased by 10.3% in total in May from April and were up 33.5% year-over-year. Defaults of subprime auto loans increased by 12.7% and were up 29.9% compared with a year ago.

Existing Home Sales Post a Small Gain on Limited Supply

Existing home sales increased slightly in May and again in April after declining for the prior two months and 14 of the last 15 months.

The existing home sales seasonally adjusted annual rate (SAAR) increased 0.2% to 4.30 million from an upwardly revised 4.29 million in April. At the May rate, existing home sales were down 20.4% from a year ago.

Inventory increased by 3.8% to 1,080,000 units, down 6.1% from a year ago and was the highest level in six months. Inventory keeps moving quickly, as 74% of the homes sold in May were on the market for less than a month, and the typical time on the market was 18 days, down from 22 days in April but up from 16 days in May last year. The months’ supply of homes for sale increased to 3.0 months from 2.9 months in April but is still less than half of what is considered normal.

The median sales price increased to $396,100, down 3.1% from a year ago. The housing market remains very sensitive to mortgage rates, which have been volatile so far this year.

The existing home market is very constrained by supply and will be as long as rates remain high since existing mortgages are much lower than what’s possible now. The limited existing home market creates opportunity in the new home market, which is seeing improving construction trends.

Housing Starts Jump, Construction Permits Increase

Residential construction starts jumped in May when a small increase had been expected. Permits increased as well but not quite as robustly as starts.

The seasonally adjusted annualized rate of starts increased by 21.7% when a decline of 0.1% was expected. Permits rose 5.2% when only a 0.6% increase had been expected. The increase in housing starts was in both single-family and multifamily.

After the May increase, total starts were up 5.7% year-over-year and up 24.8% compared to May 2019. Permits were up by 7.9% compared to 2019 in single-family and up by 17.2% in multifamily. Permits increased similarly for the month in single-family (+4.8%) and multi-family (+5.9%) and were down 12.7% from a year ago in total, down 13.2% in single-family, and down 12% in multifamily. Permits lead starts, so the permitting pace at 1.491 million units, the highest level since October, was behind the 1.631 million starts pace.

The surge in starts was likely influenced by favorable weather conditions and is not likely to see similar gains in future months. Nevertheless, the construction report in May was interpreted as showing a stable, if not improving, construction sector.

New Jobless Claims Increased, Continued Claims Remained Low

Seasonally adjusted initial jobless claims were unchanged at 264,000 for the week ending June 17. That was the highest level since October 2021 and 50,000 more than what we saw in 2020 before the pandemic began. Non-seasonally adjusted initial claims declined by 1,300 but were 4,800 higher than before the pandemic.

Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, declined by 13,000 from the previous week, moving the total down to 1.76 million as of June 10. That level of continuing claims was 128,000 lower than before the pandemic.

The broadest measure of continuing claims increased by 55,000 to 1.67 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is up 37,000 over the last four weeks but is 428,000 lower than the pre-pandemic level.

The labor market is not as strong as it was a year ago, and new claims are increasing, but continuing claims remain low and do not represent significant stress in the labor market.

Jonathan Smoke

Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.