Americans in financial distress are getting back to prioritizing paying the mortgage about as much as paying monthly credit card bills. It correlates with rising instead of falling home prices, credit management firm TransUnion finds in a new study out Thursday.
During the housing downturn and recession, in a turnabout from historical priorities, strapped consumers had begun to favor paying their monthly card bill vs. their monthly mortgage bill, says Ezra Becker, vice president of research in TransUnion's financial services unit. That pattern continued through the recession and its aftermath, until recently.
It's reflected in the spread between mortgage and card delinquency rates, which was as much as 1.44 percentage points in mid-2010 but down to just 0.19 points by the end of 2012.
"We have clear evidence that it is reverting to its traditional hierarchy — to the traditional format, which is good news," he said of payment priorities. "That reversion is very clearly driven by home value appreciation — and as well improvements in unemployment.
It's complicated, but an essential idea researchers considered was that, during the housing bust and recession, some consumers wanted to keep their ability to purchase — their credit cards — safest in the face of a lot of uncertainties, knowing that a mortgage default would only have an impact many months down the road.
Researchers looked at who had a credit card, an auto loan and a mortgage in good standing in January 2008 and checked what percentage were delinquent a year later. They did the same, picking another group for February 2008, March 2008, and so on through December 2011, and reading each group's delinquency rates at the 12-months-later mark, to get a rolling gauge of priorities.
What they found was that mortgage delinquency at the year mark rose in 2009, nearing 4% that September at a time when bank-card delinquency was ebbing under 3%. Delinquency rates for both declined in months that followed, but the spread between the two stayed high — more than a percentage point — from June 2009 through October 2011. The spread has mostly narrowed since, with the last measurement in December 2012 showing delinquency at the year mark running almost the same for credit cards and mortgages, under 2%.
Becker says regional differences in housing value improvements also align with who's paying what when. For instance, Dallas, which the study notes as mostly insulated from the housing crisis, had stable price conditions and little change in its delinquency spread.
On a nationwide basis, auto loans remain the top priority of the three loan types though, study co-author Steve Chaouki, a group vice president in TransUnion's financials services business unit, noted in the report. Delinquency for these loans was under 1% for the group of them measured in December 2012.
IBD's Finance-Mortgage & Related Services industry group is currently ranked No. 3 of 197 groups tracked. Its largest components by market capitalization — Ocwen Financial (OCN), Nationstar Mortgage Holdings (NSM) and Lender Processing Services (LPS) — are all up at least 34% year to date.
Meanwhile, IBD's credit cards-related industry group, Finance-Credit Card/Payment Processing, is currently ranked No. 30 of 197 groups tracked. Its largest components — Visa (V), American Express (AXP) and MasterCard (MA) — are all up at least 28% year to date.