The more you think you need a loan to survive, the less likely you are to get one, especially auto loans.
New York Fed Credit Access Survey report comes out every for months. The June report shows significant tightening of credit standards by lenders and less demand for loans by consumers.
June SCE Credit Access Survey Key Findings
- The application rate for any kind of credit over the past twelve months declined to 40.3 percent from 40.9 percent in February, its lowest reading since October 2020. Application rates declined to 11.9 percent for auto loans and 12.5 percent for credit card limit requests, but increased to 24.8 percent for credit cards, 6.5 percent for mortgages, and 5.3 percent for mortgage refinances.
- The overall rejection rate for credit applicants increased to 21.8 percent, the highest level since June 2018. The increase was broad-based across age groups and highest among those with credit scores below 680.
- The rejection rate for auto loans increased to 14.2 percent from 9.1 percent in February, a new series high. It increased for credit cards, credit card limit increase requests, mortgages, and mortgage refinance applications to 21.5 percent, 30.7 percent, 13.2 percent, and 20.8 percent, respectively.
- The proportion of respondents reporting that they are likely to apply for one or more types of credit over the next twelve months rose to 26.4 percent from 26.1 percent in February.
- The average reported probability that a loan application will be rejected increased sharply for all loan types. It rose to 30.7 percent for auto loans, 32.8 percent for credit cards, 42.4 percent for credit limit increase requests, 46.1 percent for mortgages, and 29.6 percent for mortgage refinance applications. The readings for auto loans, mortgages, and credit card limit increase requests are all new series highs.
Credit Applications and Rejections
Some of the decline in applications is due to declining observations. But the percentages tell the story.
Among survey respondents, the auto loan rejection rates was 2 percent in February of 2022. It’s jumped to over 14 percent as of June 2023. And that is with an application rate decline of 12 percent.
In short, fewer people want auto loans, but of those who do, rejection rates are soaring.
Credit Scores Abruptly Plunge As Americans Stop Paying Down Debt; Synchrony Financial Warns
ZeroHedge noted Credit Scores Abruptly Plunge As Americans Stop Paying Down Debt; Synchrony Financial Warns
“What we are seeing is people who are doing significant score migration — a 680 or a 690 going to a 620,” Synchrony Financial CFO Brian Wenzel said in an interview.
That’s a dive from good to fair.
Existing Home Sales Resume Slide, Down 15 of the Last 17 Months
Note that Existing Home Sales Resume Slide, Down 15 of the Last 17 Months
Inflation-Adjusted Retail Sales Are Weak
On July 18, I noted Inflation-Adjusted Retail Sales Weak Four of the Last Five Months
It’s not just consumers.
The Fed Reports Abysmal Industrial Production Numbers and Negative Revisions Too
Also note The Fed Reports Abysmal Industrial Production Numbers and Negative Revisions Too
The Bloomberg Econoday consensus estimate was unchanged in May from June. Instead, Industrial production fell 0.5 percent and the Fed revised May from -0.2 percent to -0.5 percent.
Meanwhile, the consensus opinion has changed from recession to soft landing. Does anyone hear a bell?
AI is determining loan qualifications. Not the brightest kid on the block, but IT is seeing a trend in financial actuary metrics. What if IT just freezes most credit like some sort of flash crash, and takes days to unlock.
Wouldn’t rejections tamper demand for loans?
Some people have to realize in advance that they will likely either not get a loan or not be able to service it.
the greatest insight in making money, in the worldwide poker game, is that earnings have no positive correlation to prices, in the short to medium term. one needs about 15 years to see any positive correlation. it’s all just a gambling parlor. a few folks getting cut off for auto loans seems positive to me. the debt serfs are child like. they need their toy boats and cars………in spite of their savings. bombs away.
People are moving money out of banks and buying t bills. Banks have less money to lend so they’re more picky about loans.
Banks make money by selling loans.
Everything else equal, less loans = less profits.
JPM has over a trillion in loans on their books. Over $300 billion in consumer non credit card. I imagine the other big banks aren’t far behind. So clearly they aren’t selling a lot of their loans.
There are always negative issues to deal with. Any chance of some “positive” stories as well Mish?
The US (and world) economy are resilient in the face of the problems that constantly get in the way. Inflation, rising interest rates, war, climate change, supply chain disruptions, etc. Still no recession, depression or total collapse as repeatedly predicted by some here.
Consumers, when stressed, will spend more on the basics (food, shelter, energy) and less on discretionary.
Clearly, “many” consumers are not stressed yet as travel and tourism are booming worldwide.
With the pandemic behind us, consumers with the ability, have shifted from spending on home improvements, autos, and other goods, and focusing more on “experiences” (travel, entertainment etc).
The oft-predicted stock market collapse: not here yet. NASDAQ up 40%, S&P up 15% this year. Haven’t heard much from perma-bears like Jeremy Grantham lately.
Some here kept touting $40 oil and Tesla going to $20. Perhaps they would like to update their forecasts?
I don’t make the mistake that a “negative number or trend” is “negative news. It is simply the direction of the mathematics.
The one thing we see from the above is that those with good credit are seeing less need to apply for credit, while those with bad credit continue to apply. The number of rejections is about the same, but they are an increasing percentage of the whole. I don’t interpret that as either “good news” or “bad news”, just information.
10 year car loans and 40 year mortgages.
How else cam ppl afford a $400K starter home and a $64K EV.
Banks are resilient. Therefore, the U.S. can’t lose. Bull market, strongest economy in U.S. history. Bidenomics!
On the cusp of recession Ilan opened mono gigas in TX, Germany, China and soon
in Mexico. Ilan cut prices to move stuff. After mono Ilan will cannibalized most of the competition China will move in.
Who is putting in for a mortgage refinancing at this point? Can’t be more than 100 nationwide.
Say it ain’t so. My wall street broker told me to load the boat on financial stocks as they can only go up from here?