https://www.bloomberg.com/news/articles/2024-07-16/car-repossessions-surge-23-as-americans-fall-behind-on-payments-lyoklofb
High interest rates and tight budgets are making monthly bills unaffordable for a growing number of vehicle owners.
Paywall removed https://archive.is/NFELy
I can't count how many times I've heard people say "another 2008 is coming" over the past 5 years, yet here we are without another 2008.
In June, the percentage of subprime auto borrowers who were at least 60 days late on their bills in June was 5.62%, down just slightly from a record in February, according to Fitch Ratings.
A Fed rate cut could provide some relief. Traders are anticipating the US central bank will begin lowering its benchmark rate in September, following data showing inflation cooling. That, in turn, could allow borrowers the chance to refinance or enter the market to buy something else.
At a very fundamental level, this is nothing like 2008. What's happening here is pretty much just an intended effect of the Fed raising interest rates, which has made car payments more expensive, so more people are unable to afford them.
Because the housing crisis keeps getting worse.
2008 was a correction which flopped unnecessary companies the economy was filled with.
Printer goes brrr does not fix the economy. It only bloats it more with VC tech companies and housing speculants. Which is why the housing crisis keeps getting worse every year.
Back before 2005 houses were like between 75k and 500k. After 2005 houses never went back to those prices. In a crash people don't magically get to buy a bunch of houses. Instead, companies snap up anyone's houses that seem to be below market. So the price stays and it's unaffordable.
I honestly don't know if I understand how any of your points string together to make an argument. "Between 75K and 500K" is such a range as to be meaningless. Home prices vary with individual housing markets in addition to the national market. There hasn't been a "crash" since 2008, and around that time, it was pretty universally a buyer's market, and a ton of people bought homes for themselves. The affordability issue really didn't become a thing until after COVID, and it's already trending back down
My parents bought their house in 1998 for 75k in Sandy San Diego near downtown. I bought mine in 2005 for 500k near sandy San Diego. I then bought a second place for 475k up in Irvine. All were 3 bedrooms, two bathrooms. The first two houses were from the1920s. The last one made in the 80's. I hope that makes it clear. I sold my California homes and moved to rainy Seattle and was lucky to find a house for 550k in 2019. I left the California market when the Seattle market started getting too crazy too. In just these 5 years the price of my old homes according to Zillow has gone past the 1 million mark. One is 1.2 million, the other is 1.1mil. imagine that! In 5 years there's no fuckin way I could just rebuy my old houses. So for anyone out there trying to move, do what I did and save first, buy before selling, and calculate for the worse possible outcome. That will get you a realistic baseline... think of everyone involved as little fucking money sharks, the contractor 10k, the buying agent, 30k, the bank 30k, etc etc.
If you sell, your run the real risk that your entry money goes stale and you'll be unable to afford the house you used to live in.
Yes, houses cost way more in the most desirable metros in the entire country, that also aren't building supply to meet demand. Your experience is not the same as the experience of the vast majority of the US. I guess overall I don't understand your point though, or how it relates to this conversation.
The Fed raising rates only affects recent car buyers, so it can’t account for a 23% surge. What the Fed raising rates does do—and is intended to do—is cause unemployment, which inevitably results in missed car payments, and even missed mortgage payments.
so it can’t account for a 23% surge.
Why not? I don't see this logic
The Fed raising interest rates affects lots of things directly, including the cost of home and auto loans, not just unemployment rates, which are indirectly affected
Exactly. Auto loans are relatively short-term, and you're probably more likely to default relatively early into the loan than later, esp. since you would no longer be upside-down later on.
Not who you asked, but I see it within the realm of possibility because of all the commercials I saw urging people to finance a pizza.
Lol I guess I'm out of the loop on that one. In that vein, though, the entire point of commercials for decades has been to convince you to make bad decisions
The economy must transition from fossil fuels to other forms of energy. The longer we take the worse it will be, but nobody in power feels any urgency.
Add to that the GFC of 2008 that we "fixed" by printing money, and which was followed by a global pandemic and financial slowdown that... we fixed by printing money.
Now factor in the fact that we didn't use 2008 to tighten banking regulation, and we have just as many opaque financial instruments (derivatives, swaps) as we did back then.
And all of this as global warming kicks into absolute overdrive, likely due to a feed forward mechanism being tripped such as the methane release from Siberia and/or the clathrate gun going off.
We are well and truly fucked. This reality is noticable if you're paying attention, and will slowly become impossible to miss (let alone ignore).
Ok doomer. Nothing you just said is anything new to any of us, and nothing you just said makes any argument for expecting another global financial crisis within the next 12 months. It just seems like that's what you're hoping for lol
Except this time it's Commercial real estate.
Back to the office is really a cry for help as those values plummet.
If you want to lose money as fast as possible, either buy commercial real estate or invest in CMBS.
Yeah, commercial real estate has been hot for the last 25-ish years, I think its time has come.
Considering the ridiculous loan terms I’ve seen, I’m surprised that this hasn’t happened sooner. The cars can’t possibly be worth that much money.
Unfortunately when you need transport, it more often than not becomes worth whatever the price they charge is. A lot of unfortunate people fall into awful loans because they lack viable transport options otherwise. Rto hasn't helped at all either.
Agreed. I wish people in general were more confident in repairing their cars, because that's a great way to put off a big purchase. However, I just mentioned to a coworker a repair I did (which saved me like $800-1000), and they were shocked and didn't understand how I could do it (basically ripped apart the dash and sent the odometer chip to a repair place; if I didn't suck at soldering, I could've saved another $70 or so).
But most aren't, or they don't have space to do it even if they had that confidence. And the result is getting sucked into paying 10% interest over a 7-year term in 2020/2021 because your car broke down at just the wrong time and parts aren't generally available.
However, the silver lining is that the more people that default, the better the used car market will get, so there will be more options for people who can't afford new cars. So I think it'll even itself out, it just might take a year or two to stabilize. I'm in the market for a car, and honestly, the options suck. The cars I want are out of stock, and the cars that are readily available are available for a reason. I've never financed a car (newest car I bought was 8 years old), but it's looking like that's the best option right now. So, I'm holding off and just maintaining our aging cars (both >15yo), but that's not a realistic option for a lot of people.
Good news for the used car market. Lots of new inventory about to become available.
Bad news for American car manufacturers, who are already struggling while they're in limbo between ICE and EV and can't commit to either, but certainly will help to correct used car prices.
There's data for that. At least as of Jan, it has largely stabilized (as in, rate of forclosures isn't increasing), and it's way below pre-2008 levels. The foreclosure rate seems to track pretty closely with rate increases, and that's held steady for about a year now, and there's talk of a small decrease.
So I don't think house repos are related at all to the trigger for the headline. I'm guessing a lot of the car repos are due to paying way too much for an EV (the used EV market is really attractive right now) or luxury ICE (average purchase price Is way above modest new car prices), and then losing a job (lots of tech layoffs recently). I'd like to see more details, but I highly doubt regular working class cars are getting repoed.
Eh, I think this will just reinvigorate the used market and push prices of new cars down. I doubt the car market would trigger a recession.
Oh it's so much more than the just the car market. Housing is too expensive as well. And so many other goods and services. I don't know anyone that's not in crazy debt
The home foreclosure rate is way below where we were at around 2008. It is trending up, but slowly. Consumer debt is high, but debt to income is in a pretty consistent range.
The problem with 2008 wasn't high foreclosure rates (that was just the trigger), it's that the foreclosure risk wasn't properly baked into lending rates. So banks thought they had less risk than they did, and that was due to greed (i.e. banks selling loans in buckets that masked the risk). Since then there have been a lot of changes in how risk is managed, so I highly doubt we'll see a similar cascading failure. We may see higher foreclosure rates due to high borrowing rate shock, but that shouldn't translate to a recession, it would just hurt bank profits in the short term. At least that's the theory.
So if banks don't start failing, we shouldn't see a big disruption to employment, therefore no major recession. At least that's my take.
As for anecdotes, most of the people I know aren't in crazy debt. Looking around the neighborhood generally doesn't match what's going on more broadly.