Consumer Finance Protection Bureau (CFPB) Chart

The CFPB is Examining the Potential Credit Impact of High Vehicle Costs for Consumers. 

The average price consumers paid for new vehicles reached a record high of $48,182 in July of 2022 while the average price of used vehicles is $28,219, just below the record high set in April 2022. As seen in the graph below, prices for vehicles increased over the past two years, especially throughout 2021.

New and Used Vehicle Prices

New and Used Car Price Chart from CFPB

When looking at delinquency in the first two years after purchase, loans originated in 2021 and 2022 are starting to show higher delinquency rates relative to loans originated in previous years, even when compared to loans unaffected by pandemic-related stimulus payments. For example, auto loans originated in 2021 have a delinquency rate of 0.67 percent in the sixth quarter after origination, which is 13 percent higher than the delinquency rate of auto loans originated in 2018.

Auto Loan Delinquency Rates For All Borrowers

Auto Loan Delinquency Chart from CFPB

As shown in the lead chart, this trend is even more pronounced for consumers with subprime and deep subprime credit scores. 

For example, 2022 vintage auto loans for consumers with deep subprime credit scores were 2.4 percent delinquent two quarters after origination, which is a 33 percent increase from the previous five-year high set in 2020.

Walking Away From Car Loans

Takes a lot to shock me but my jaw dropped when @DiMartinoBooth observed that people who took out auto loans are now walking away from their cars.

Reminded me of 2007 when homebuyers w/ underwater mortgages walked away from their houses and initiated a vicious cycle of selling https://t.co/Zi12eLbmdg

— Jack Farley (@JackFarley96) October 25, 2022

Key Quotes

• "People are walking away because payments are too high, and the loans have nothing to do with the value of the car." 
• "It's just incredible. And we are seeing delinquencies rise before the layoff cycle begins." 
• "You would think that by looking at repossession rates, that we are already in recession, which we are, which is another story, but not if you look through the prism of unemployment."

Recession or Not?

Retail sales, existing home sales, and housing starts are all at levels that have never happened outside of recessions.

Existing Home Sales 

Existing home sales data from National Association of Realtors via St. Louis Fed, chart by Mish

For discussion, please see Existing Home Sales Decline 8th Consecutive Month, Down 1.5% Says NAR

Housing Starts 

Seasonally-adjusted, annualized (SAAR) housing data from commerce department, chart by Mish

For discussion, please see Housing Starts Resume Crash in September as Widely Expected

Retail Sales Percent Change From Month Ago

Retail sales data from Commerce Department, CPI adjustment by Mish

Real vs Nominal Retail Sales

Retail sales data from Commerce Department, CPI adjustment by Mish

For discussion, please see Factoring in Inflation, Retail Sales Remain Very Weak in September

Synopsis

• Existing home sales fell for the eighth consecutive month. They are down 27.4 percent since January. When has this ever happened outside of recession?
• Housing starts are down 20 percent in the last five months. How often does this happen outside of recession?
• Real retail sales are down five of the last seven months, are 2.4 percent below March of 2021 and are down 1.4 percent since April. When have retail sales remained persistently weak outside of recessions?

Biden Chimes In

• On October 11, Axios reported Biden says "slight recession" possible, "but I don't anticipate it"
• On October 23, Fortune reported The White House says the U.S. is strong enough to avoid a recession

Even assuming we are not in recession now, given lags before monetary policy bites, there is no way to avoid one. 

Housing tends to lead recessions and recoveries and with mortgage rates above 7 percent, housing is going nowhere but down.

But hey, label it however you like. 

Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

Lost in the debate over whether recession has started, is the observation that it doesn't matter much either way. 

The Fed blew an enormous bubble and these are the consequences as noted earlier today in Case-Shiller Home Price Declines Steepen, How Low and How Fast From Here?

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