Demand for vehicles is high despite larger payments, says New York Fed
Borrowers typically accept larger auto loans and higher monthly payments due to scarcity of new and used vehicles, but New York Federal Reserve researchers are watching a recent uptick in delinquencies among 18-29 year. year.
In its report, the New York Fed reports that national auto emissions in the fourth quarter were worth a record $180.5 billion, an increase of 11.7% from a year ago, even if the unit volume was more or less stable. This is for new and used, loan and rental combined.
“Households are in very good shape. Savings have increased, people are in a pretty good position,” says one of the authors of the New York Fed’s quarterly report on household debt and credit for the fourth quarter of 2021, published on February 8.
However, “some people have come through the pandemic pretty well, and some not so well,” the Fed researcher said in an online press briefing. In accordance with its policy, the New York Fed requests that its researchers not be named.
Borrowers aged 18 to 29 saw an increase in the fourth quarter compared to the third quarter in the percentage of auto loan and lease accounts that moved into serious delinquency, defined as being 90 days or more in arrears: at 2.98%, compared to 2.71%. says the Fed.
However, even for this age group, the percentage of transition to serious delinquency was lower than the level of a year ago for the fourth quarter. Across all age groups, the transition to serious delinquency is down slightly from Q3 and down from Q4 a year ago, according to Fed data.
“We are closely watching auto loan performance going forward,” a Fed researcher said.
There is cause for concern because the scarcity of vehicles caused by the shortage of computer chips is pushing up average loan and lease balances, as well as monthly payments, according to the Fed. The average monthly automatic payment is up 8% from a year ago, to $418, for new and used combined, the report said.
Logically, consumers will eventually reach a point where auto loans and leases will become so unaffordable that demand will decline, but that point has not yet been reached, according to the Fed.
“We expect that the price of new and used cars cannot increase indefinitely relative to income. Expect a reduction in demand at some point,” says a Fed researcher. “On the other hand, people depend on the car to get around and to get to work. It’s not an easy thing to replace.