The default rate for first mortgages crept up slightly to 0.74% in February, rising from 0.72% in January, according to the S&P/Experian Consumer Credit Default Indices.
Still, the default rate for first mortgages was down from 0.84% in February 2016.
The default rate for second mortgages was 0.51%, up from 0.48% in January but down from 0.60% in February of last year.
The index also measures the default rate on credit cards, which stood at 3.22%, up slightly from 3.21% and up from 2.56% a year earlier, as well as auto loans, which stood at 1.05%, down from 1.06% a month earlier but flat compared with February 2016.
The national bank card default rate of 3.22% was the highest since July 2013.
“The increase in the Fed funds rate announced last week by the Federal Reserve will push up the interest rate charged on bank cards in the near future,” says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. “The quarter percentage point increase will be gradually passed through to the charges faced by those borrowing with their credit cards.
“Based on the projections made by members of the Fed’s policy committee, we could see three or possibly four additional increases this year,” Blitzer says. “Given the prospect of higher interest rates and continuing economic expansion, the recent rise in bank card default rates is not expected to immediately reverse.”
Blitzer notes that interest rates on auto loans and mortgages are also likely to advance following the Fed’s action.
Despite the fact that consumers will likely pay more in interest charges moving forward, job and income growth have at least been improving in recent months.
“The economy is expanding, adding over 200,000 new jobs each month,” Blitzer says. “However, wages are barely keeping up with inflation. Over the 12 months through February 2017, hourly earnings adjusted for inflation were unchanged. Inflation has risen slightly in the past year and is now about 2%. The longer-term prospects for limiting or reversing the rise in bank card defaults depends on the outlook for wages and inflation as well as interest rates. While interest rates on home mortgages and auto loans are likely to rise, the default rates don’t show any adverse trends now.”