Isn't the crisis of electronic chips and charging the main reason for the price hike during the past year? I remember that most of the agencies were unable to provide model year cars even with the high prices and advance payment, which caused them great embarrassment, including the increase in the prices of the rest of the models for the past years.
In general, in the local market here, and without lending prices, car prices suffered from sharp fluctuations, and the problem of loans has added additional challenges.
Topic: Car repossessions are on the rise in warning sign for the economy - page 2. (Read 352 times)
December 23, 2022, 04:34:04 AM
December 23, 2022, 04:09:21 AM
Car and housing markets are two very important indicators to understand the mode of the economy. Because these are two things that families own when they have some surplus money and a stable income source. So whenever there is a decline in car and housing demand and a rise in non performing assets, it's usually a very concerning matter for the economy. It shows that the income sources are drying out and new sources are not getting created. That also initiates a decline in demand of general consumer goods which eventually leads to more job cuts and income losses.
Probably the first world countries are moving towards a recession and the third world countries are going to be benefited out of it.
Probably the first world countries are moving towards a recession and the third world countries are going to be benefited out of it.
December 20, 2022, 05:52:14 PM
Quote
After auto repossessions tumbled during the pandemic, they are now approaching their pre-pandemic levels with industry analysts worried the trend will continue.
WASHINGTON — A growing number of consumers are falling behind on their car payments, a trend financial analysts fear will continue, in a sign of the strain soaring car prices and prolonged inflation are having on household budgets.
Repossessions tumbled at the start of the pandemic when Americans got a boost from stimulus checks and lenders were more willing to accommodate those behind on their payments. But in recent months, the number of people behind on their car payments has been approaching prepandemic levels, and for the lowest-income consumers, the rate of loan defaults is now exceeding where it was in 2019, according to data from ratings agency Fitch.
Industry analysts worry the trend is only going to continue into 2023 with economists expecting unemployment to rise, inflation to remain relatively high and household savings set to dwindle. At the same time, a growing number of consumers are having to stretch their budgets to afford a vehicle; the average monthly payment for a new car is up 26% since 2019 to $718 a month, and nearly one in six new car buyers is spending more than $1,000 a month on vehicles. Other costs associated with owning a car have also shot up, including insurance, gas and repairs.
“These repossessions are occurring on people who could afford that $500 or $600 a month payment two years ago, but now everything else in their life is more expensive,” said Ivan Drury, director of insights at car buying website Edmunds. “That’s where we’re starting to see the repossessions happen because it’s just everything else starting to pin you down.”
'Recipe for disaster'
For those in the repossession business, it’s been difficult to keep up. Jeremy Cross, the president of International Recovery Systems in Pennsylvania, said he can’t find enough repo men to meet the demand or space to hold all the cars his company has been tasked with repossessing. With the holidays approaching, he’s been particularly busy as people prioritize spending elsewhere, and he’s expecting business to keep up throughout next year and 2024.
“Right now, it’s really the perfect storm,” said Cross. “Over the last two years, vehicle prices were inflated because there was no new car supply, people were still buying like crazy because they had a lot of stay-at-home cash, they had inflated credit scores, so it was like a recipe for disaster.”
At the same time, the number of repossession companies has shrunk by 30% as many firms closed up shop and the workers found jobs in other industries when repossessions tumbled during 2020, Cross said. Now, he said, lenders are paying him premiums to repossess their cars first in anticipation of a continued increase in loan defaults.
“The volume is picking up, and the remaining companies that are still performing repossessions are very busy,” Cross said. “The overall numbers are still not prepandemic numbers, but we will see a big change coming in ‘23 and ‘24 that I think the lenders are starting to recognize because they are offering financial incentives that they never had to do in the past. They’re jockeying for position knowing that there’s only a certain amount of bandwidth available.”
It’s an issue that’s raised concern among officials at the Consumer Financial Protection Bureau, who say they are seeing troubling signs in the auto market, particularly among so-called subprime borrowers, who have below-average credit scores, and those with loans taken out in 2021 and 2022 when auto prices were particularly high.
“Loans taken out in those years are performing worse than prior years just because those consumers had to finance cars once the supply chains were jammed and the prices started to go up,” said Ryan Kelly, acting auto finance program manager for the CFPB. “Those consumers got hit with inflation twice. First, when they had to finance a car after the prices went up, and then when they had to put gas in the car after the Russia-Ukraine conflict started. So there’s just a lot of consumer stress.”
If the economy deteriorates as many economists are predicting in 2023, the number of those falling behind on their car payments should continue to rise, even as consumers tend to give priority to their car payment ahead of most bills because of the importance a car plays in getting to work or potentially providing shelter, industry analysts said.
Still, the rate of defaults and repossessions isn’t expected to reach 2008 and 2009 levels, when there was a spike caused by the financial crisis. The percentage of auto loans that were 30 days delinquent was at 2.2% in the third quarter compared with 2.35% delinquent over the same period in 2019, according to data from Experian. By contrast, just over 4% of auto loans went into default in 2009.
“We’re expecting it to continue to increase and maybe even breach prepandemic levels because of the macroeconomic headwinds of higher interest rates, higher cost of borrowing and expectations for unemployment to continue to increase,” said Margaret Rowe, the lead auto analyst at Fitch. “I think our expectation is that we’re going to continue to see it go up, but it’s just been so low that even going up isn’t like what we saw in the Great Financial Crisis.”
'A lot of stress'
Cox Automotive analysts forecast that while loan defaults and repossessions will increase from their pandemic lows, long-term through 2025 they predict overall defaults and repossessions will remain at or below historic norms.
Still, the financial squeeze has been particularly difficult for lower-income consumers looking for budget vehicles, which have been particularly hard to find. While in the past, those car buyers would have purchased a used car for $7,000 to $15,000 they are now having to spend $20,000 to $25,000 for the same type of vehicle. Among dealers that cater to subprime and deep subprime consumers, the average listing price on their cars has almost doubled since the beginning of the pandemic, according to the CFPB.
“That near prime and subprime group of consumers, they’re getting hit very, very hard by inflation. That group of people did not have much disposable income. They had to finance a more expensive car and then they got hit with prices going up overall. There’s just a lot of stress,” said Kelly.
Ally Financial, which has a significant share of loans to subprime borrowers, said in its October earnings report that it expects delinquencies to increase to as much as 3.8% compared with 3.1% in 2019.
Another risk to car buyers’ finances is the growing length of auto loans, many of which now exceed seven years. While those longer term loans can lower the monthly payments amid higher prices, consumers risk paying off the loan much more slowly than the car is depreciating, leaving them underwater if they need to sell the vehicle. It can also mean higher interest costs over the life of the loan on top of already inflated vehicle prices.
For consumers, there is unlikely to be any relief over the next year. Interest rates are expected to remain high for those needing to borrow to buy a vehicle, and Covid-related plant closures and material shortages are continuing to ripple through the car manufacturing supply chain, limiting the number of new vehicles.
“I dare think what happens to people who are signing up for new loans today,” said Drury. “It’s not going to be better when we see these payments so high.”
https://www.nbcnews.com/politics/economics/car-repossessions-are-rise-warning-sign-economy-rcna61916
WASHINGTON — A growing number of consumers are falling behind on their car payments, a trend financial analysts fear will continue, in a sign of the strain soaring car prices and prolonged inflation are having on household budgets.
Repossessions tumbled at the start of the pandemic when Americans got a boost from stimulus checks and lenders were more willing to accommodate those behind on their payments. But in recent months, the number of people behind on their car payments has been approaching prepandemic levels, and for the lowest-income consumers, the rate of loan defaults is now exceeding where it was in 2019, according to data from ratings agency Fitch.
Industry analysts worry the trend is only going to continue into 2023 with economists expecting unemployment to rise, inflation to remain relatively high and household savings set to dwindle. At the same time, a growing number of consumers are having to stretch their budgets to afford a vehicle; the average monthly payment for a new car is up 26% since 2019 to $718 a month, and nearly one in six new car buyers is spending more than $1,000 a month on vehicles. Other costs associated with owning a car have also shot up, including insurance, gas and repairs.
“These repossessions are occurring on people who could afford that $500 or $600 a month payment two years ago, but now everything else in their life is more expensive,” said Ivan Drury, director of insights at car buying website Edmunds. “That’s where we’re starting to see the repossessions happen because it’s just everything else starting to pin you down.”
'Recipe for disaster'
For those in the repossession business, it’s been difficult to keep up. Jeremy Cross, the president of International Recovery Systems in Pennsylvania, said he can’t find enough repo men to meet the demand or space to hold all the cars his company has been tasked with repossessing. With the holidays approaching, he’s been particularly busy as people prioritize spending elsewhere, and he’s expecting business to keep up throughout next year and 2024.
“Right now, it’s really the perfect storm,” said Cross. “Over the last two years, vehicle prices were inflated because there was no new car supply, people were still buying like crazy because they had a lot of stay-at-home cash, they had inflated credit scores, so it was like a recipe for disaster.”
At the same time, the number of repossession companies has shrunk by 30% as many firms closed up shop and the workers found jobs in other industries when repossessions tumbled during 2020, Cross said. Now, he said, lenders are paying him premiums to repossess their cars first in anticipation of a continued increase in loan defaults.
“The volume is picking up, and the remaining companies that are still performing repossessions are very busy,” Cross said. “The overall numbers are still not prepandemic numbers, but we will see a big change coming in ‘23 and ‘24 that I think the lenders are starting to recognize because they are offering financial incentives that they never had to do in the past. They’re jockeying for position knowing that there’s only a certain amount of bandwidth available.”
It’s an issue that’s raised concern among officials at the Consumer Financial Protection Bureau, who say they are seeing troubling signs in the auto market, particularly among so-called subprime borrowers, who have below-average credit scores, and those with loans taken out in 2021 and 2022 when auto prices were particularly high.
“Loans taken out in those years are performing worse than prior years just because those consumers had to finance cars once the supply chains were jammed and the prices started to go up,” said Ryan Kelly, acting auto finance program manager for the CFPB. “Those consumers got hit with inflation twice. First, when they had to finance a car after the prices went up, and then when they had to put gas in the car after the Russia-Ukraine conflict started. So there’s just a lot of consumer stress.”
If the economy deteriorates as many economists are predicting in 2023, the number of those falling behind on their car payments should continue to rise, even as consumers tend to give priority to their car payment ahead of most bills because of the importance a car plays in getting to work or potentially providing shelter, industry analysts said.
Still, the rate of defaults and repossessions isn’t expected to reach 2008 and 2009 levels, when there was a spike caused by the financial crisis. The percentage of auto loans that were 30 days delinquent was at 2.2% in the third quarter compared with 2.35% delinquent over the same period in 2019, according to data from Experian. By contrast, just over 4% of auto loans went into default in 2009.
“We’re expecting it to continue to increase and maybe even breach prepandemic levels because of the macroeconomic headwinds of higher interest rates, higher cost of borrowing and expectations for unemployment to continue to increase,” said Margaret Rowe, the lead auto analyst at Fitch. “I think our expectation is that we’re going to continue to see it go up, but it’s just been so low that even going up isn’t like what we saw in the Great Financial Crisis.”
'A lot of stress'
Cox Automotive analysts forecast that while loan defaults and repossessions will increase from their pandemic lows, long-term through 2025 they predict overall defaults and repossessions will remain at or below historic norms.
Still, the financial squeeze has been particularly difficult for lower-income consumers looking for budget vehicles, which have been particularly hard to find. While in the past, those car buyers would have purchased a used car for $7,000 to $15,000 they are now having to spend $20,000 to $25,000 for the same type of vehicle. Among dealers that cater to subprime and deep subprime consumers, the average listing price on their cars has almost doubled since the beginning of the pandemic, according to the CFPB.
“That near prime and subprime group of consumers, they’re getting hit very, very hard by inflation. That group of people did not have much disposable income. They had to finance a more expensive car and then they got hit with prices going up overall. There’s just a lot of stress,” said Kelly.
Ally Financial, which has a significant share of loans to subprime borrowers, said in its October earnings report that it expects delinquencies to increase to as much as 3.8% compared with 3.1% in 2019.
Another risk to car buyers’ finances is the growing length of auto loans, many of which now exceed seven years. While those longer term loans can lower the monthly payments amid higher prices, consumers risk paying off the loan much more slowly than the car is depreciating, leaving them underwater if they need to sell the vehicle. It can also mean higher interest costs over the life of the loan on top of already inflated vehicle prices.
For consumers, there is unlikely to be any relief over the next year. Interest rates are expected to remain high for those needing to borrow to buy a vehicle, and Covid-related plant closures and material shortages are continuing to ripple through the car manufacturing supply chain, limiting the number of new vehicles.
“I dare think what happens to people who are signing up for new loans today,” said Drury. “It’s not going to be better when we see these payments so high.”
https://www.nbcnews.com/politics/economics/car-repossessions-are-rise-warning-sign-economy-rcna61916
....
The same negative trend also applies to housing loan markets.
While many contractual loans are failing at historically high rates. Could there be an eventual upside in terms of car and real estate assets becoming more affordable within the foreseeable future?
It has recently been acknowledged that used car prices are downtrending sharply at a record rate, (I think) in correlation with the elevated rate of failing car loans.
Quote
Used vehicle demand and prices continue to decline from record highs
Cox Automotive said Wednesday that its Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined 15.6% from record levels in January through November. The index dropped to 199.4 last month, below 200 for the first time since August 2021, and is down 14.2% from the same month a year ago. It marks the sixth-consecutive month of declines.
Image link: https://i.ibb.co/ky2F5mW/used-car-prices-2022.jpg
https://www.cnbc.com/2022/12/07/used-vehicle-demand-and-prices-continue-to-decline-from-record-highs.html
- Wholesale prices of used vehicles reached their lowest level in more than a year last month, as retail sales decline amid interest rate hikes, rising new vehicle availability and recessionary fears.
- The Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined about 16% from record levels in January.
- The decline is good news for potential car buyers, however not great for companies such as Carvana that purchased vehicles at record highs and are now trying to sell them at a profit.
Cox Automotive said Wednesday that its Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined 15.6% from record levels in January through November. The index dropped to 199.4 last month, below 200 for the first time since August 2021, and is down 14.2% from the same month a year ago. It marks the sixth-consecutive month of declines.
Image link: https://i.ibb.co/ky2F5mW/used-car-prices-2022.jpg
https://www.cnbc.com/2022/12/07/used-vehicle-demand-and-prices-continue-to-decline-from-record-highs.html
Perhaps we will likewise see real estate market values fall within a similar trend, which would make living space more affordable for many current full time employees who cannot afford it.
Unfortunately, there could be another trend in play here. Cars and living space might increasingly become deflationary in supply. It has been reported that US automakers are inching nearer to bankruptcy. Which could result in overall scarcity of car supply, if production and competition decline.
Similar trends could also apply to US real estate markets. Where influxes of immigration could contribute towards real estate and living space becoming increasingly scarce and limited in supply.
But in the short term, from the chart above we can see that used car prices are declining and perhaps that will correlate with long term market trends to make transportation and living space more affordable.
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