Auto loans are now at a record $1.1 trillion. Interestingly, the majority of these loans are coming from prime borrowers, not subprime loans as most assume. It reminded me on this study -
Which suggests that the housing crash was not so much a function of subprime loans to people who could not afford nice homes but rather by buyers with good credit who simply defaulted on house flips and walked away from them. It would suggest to me that the vast swath of consumer debt and poor decision making on loans is as much or more a product of consumers with good credit as ones with bad credit.
This “study” is BS. They treat subprime very narrowly. If they included NINJA loans as sub-prime, which they most certainly were, it would be a different story. Unless you believe that people with 750 fico scores were taking out NINJAs? Yeah didn’t think so.
When people making $50K were buying $500K houses with 0% 6 month option ARM loans, without any verifiable income, that’s when you knew there was a problem. And that is happening once again now. Not to the same extent, but we’re seeing 0% down loans making a come back along with a relaxing of standards by lenders. 600 FICO scores are getting mortgages once again. What could possibly go wrong?
This new “study” is an attempt to keep the party going. Let’s keep lending money to people with awful credit, cuz well, you see they weren’t the problem. And who cares if they don’t pay it back? Uncle Sam will be there with a nice fat bailout once again.
Which means the next crash is just around the corner. I’ve been predicting late '18, early '19.
Definitely. It can take 2 years to be evicted for not paying the mortgage. But the repo man can show up within days of missing a car payment. People know this.
I think the crash will not happen from real estate. If it does, it will be regional like New England area in early 90s. As long as foreign buyers continue to buy houses without caring about price, we should be ok. Again, just an opinion. I did a paper in my mba days and it was a lot of factors for the crash. The Fed lower rates, financial engineering, and drop in liquidity in financial markets, made the crisis worse than it could have been. Securitizations are coming back but not like in the 2000s.
Historical median income to median home price has been 3-4X. Right now in Seattle it’s pushing 10X and in California it’s well above 10X. I agree it will be regional, the region being the entire country, lol.
It’s already starting in Miami, condo sales have fallen off a cliff. Of course r/e pumpers will blame the hurricane even though condos stopped selling about 6 months before.
Ironically the one place where prices haven’t gone insane again is Las Vegas.
Also the early 90s wasn’t just a NE thing. California suffered pretty badly then too. It took until almost 2000 for prices to get back to 1989 levels.
Why do you assume they did not account for no-income loans in their analysis of subprime data? They review the same data sources used in economic papers from years prior that suggested the lionshare of the bubble was due to subprime lending and bad bank behavior and instead compare delinquency rates relative to income and location and find trends suggestion middle and upper income level flippers had an outsized effect. Seems strange that this analysis from an MIT professor published by Oxford is “BS” based on a cursory glance.
Also, my comment doesn’t really conflict with your anecdotal example. Someone with a $50k a year income is middle class and could very well have had excellent credit and thus would fall under the exact cohort the study is referring to. I think what is interesting is that the general narrative I hear from people is that the bubble was propped up by low to no income buyers getting garbage loans they could never pay but it was much more complex.
Right. So every study done over the past 10 years is wrong, but this one is right. Yeah that sounds legit. The fact it’s an MIT guy saying so doesn’t impress me much. Plenty of MIT people, as well as Yale/Harvard were saying the exact opposite for years.
And having an outsized affect is not the same as causing. There is no one single factor that caused the crash. It was a combination of subprime, flipping, CDOs, fraud, you name it. But this article implies that one group - flippers - caused it to happen above all else. Which is ludicrous.
Did you ever hear about the strawberry picker making $14K a year who bought the $700k house? That was the defining moment of the bubble and perfectly encapsulated the insanity. Anyone with a pulse, regardless of income/credit could get a mortgage. That was the problem. Not the lawyer/doctor who tried his hand at house flipping.
What is every study done in 10 years that came to the same conclusion? There is one study primarily sourced, and an overarching narrative of the history which likes to reference anecdotes like a strawberry picker, who while newsworthy, is just that, an anecdote that became a symbol for low income irresponsible actors, not a representation of the larger economic data at hand. The beauty of analytics is the interpretation of data sets which can draw different conclusions and evolve thinking over time. I am simply sharing another analysis which I find interesting. You on the other hand seem dismissive and determined to deflect blame back to one group when the default rates relative to credit score and income levels show otherwise.
A share broker advised me that the Automobile sales showed a mixed performance with commercial vehicle OEMs reporting strong double-digit YoY volume growth and two-wheeler/car OEMs posting a mixed trend. Tractor sales, which have been growing in double digits, posted single-digit growth. Kerala floods impacted retail sales and despatches of OEMs, with the despatches of Maruti Suzuki India and Eicher Motors - which have a higher share of sales in Kerala - being impacted the most. Most passenger vehicle players and two-wheeler OEMs reported single-digit growth in sales. In twowheeler segment, Bajaj Auto reported strong growth with all-time high sales and a growth rate of 30% YoY. Other positives were strong medium and heavy commercial vehicle (MHCV) sales in case of all OEMs.
