2021 U.S. Consumer Credit Market Will See A Rebound

The newly released TransUnion 2021 consumer credit forecast found that access to credit cards and personal loans is expected to rebound through the first half of next year while new auto loans will shift toward lower risk consumers.

Despite potential obstacles to the consumer credit market, TransUnion foresees positive trends buoyed by expected improvements in macroeconomic factors such as unemployment and GDP.

The disruption caused by the COVID-19 pandemic was most apparent for originations in the second quarter of 2020 as lending slowed dramatically for unsecured credit products such as personal loans and credit cards in comparison to the preceding quarter.

In 2021, TransUnion sees Q2 playing another big role – this time in the form of new originations returning to pre-COVID levels with credit card and personal loan volumes expected to rise at the greatest rate.

“The re-opening of America and the expected addition of more jobs and increased wages will make the greatest impact in how consumers are able to manage their debts in 2021,” said Matt Komos, vice president of research and consulting at TransUnion. “We are forecasting robust origination activity, and barring any unforeseen shocks to the economy, we anticipate this growth will commence at the beginning of the second quarter of 2021 for most credit products. Our forecast also sees a greater percentage of new loans going to lower risk consumers, which we believe will benefit the overall serious delinquency picture.”

Originations Could Grow in First Half of 2021, Especially in the Second Quarter

Loan*/Time Period	Q1 2020	Q1 2021 Projection	YOY % Change		Q2 2020	Q2 2021 Projection	YOY % Change
Auto	6.34 million	6.85 million	8.0%		6.46 million	7.40 million	14.6%
Credit Card	15.52 million	12.52 million	-19.3%		8.59 million	14.13 million	64.5%
Personal Loan	3.90 million	3.30 million	-15.4%		2.60 million	4.22 million	62.3%
Mortgage	1.87 million	2.13 million*	13.9%		3.03 million	2.05 million*	-32.3%

*Mortgage origination projection based on figures from the Mortgage Bankers Association.

How quickly the consumer credit market rebounds in 2021 will be influenced by mortgage borrowers, specifically those starting the year still in accommodation programs. Through October 2020, 84% of all accounts that entered forbearance since March 2020 have exited accommodation status. The remaining accounts in accommodation are most elevated for mortgages (5.4%) while less than 4% of overall total account volume remains for auto, credit card and personal loans.

In addition to having a higher percentage of consumers remaining in accommodation status, mortgage loans also have exhibited different trends from other credit products. Whereas other credit products are seeing a high rate of consumers exiting forbearance, in September 2020, mortgage loans reached an inflection point as the rate of entry and exit from accommodation programs were nearly equal. Furthermore, consumers that have a mortgage in forbearance also have a higher percentage of other credit products in their wallet, which could impact future delinquency rates.

“Serious consumer delinquency rates have remained low in 2020 primarily because of the accommodation programs provided to consumers at the onset of the COVID-19 pandemic. However, we believe those consumers with accounts still in mortgage forbearance also may be the ones who will find it most difficult to make their monthly payments once accommodation programs end. A lot of external factors could influence their payment behaviors, including additional stimulus, the widespread release of vaccines and the pace of economic recovery, though timing could play a major role in the impact to consumer credit. At this time, our 2021 projections point to a year that will be more reminiscent of 2019 than the COVID-19-impacted consumer credit market of 2020,” concluded Komos.

For more information about the 2021 TransUnion forecast and to register for a webinar providing detailed projections, please click here.

TransUnion Forecast: Four Other Trends to Keep an Eye on in 2021

Trend #1: Forbearance Programs and Origination Activity to Impact the Mortgage Market

Following a small potential end-of-year spike in Q4 2020, the number of mortgage accounts in forbearance is expected to roughly remain flat for the first quarter of 2021. Mortgage accounts in forbearance are then expected to sharply decline in April and May (exactly one year from the height of mortgage forbearance enrollment during the pandemic). Mortgages are not viewed as being delinquent while they are in forbearance, hence delinquencies are expected to climb from historic lows when these programs expire. The big drivers in the mortgage market will be how the economic recovery looks, along with how government and lender programs accommodate borrowers so they resume making payments. Refinancing activity will continue into 2021 at a lower rate than the all-time highs observed in 2020. In 2021, first-time homebuyers will continue to make up the majority of purchase borrowers, though their share is expected to drop from the 70% high mark that occurred in early 2020.

Instant Analysis
“While origination activity will slow from the breakneck growth observed in 2020, and the bulk of volume will shift to purchase, continued low interest rates will keep refinancing an attractive option for consumers. Cash out refinancing is expected to gain traction in the second half of next year as we return to a ‘more normal’ economic landscape and lenders feel more comfortable with riskier cash-out refi programs. This will become a source of liquidity to borrowers who will be able to tap their home equity, which is at all-time highs as home prices continue to climb.”

• Joe Mellman, senior vice president and TransUnion’s mortgage line of business leader

Trend #2: Credit Card Origination Volumes Will Rebound in 2021

The number of credit card originations reached a 10-year low of 8.6 million in Q2 2020, but the market began to rebound in the second half of the year. Forecasted improvements in unemployment and GDP growth are expected to drive a 64% year-over-year increase in origination volume during the first half of the year as card issuers look to ramp up growth across their portfolios. However, economic uncertainty will impact consumer spending through the first half of 2021. The spending suppression trend will drive a decline in total card balances from $723B in Q3 2020 to $666B in Q3 2021. This decline in spending, however, will help lift credit card performance as delinquencies are forecasted to remain lower than 2019 levels. Severe credit card delinquency at the end of 2021 is not expected to exceed 1.3%.

Instant Analysis
“Origination activity in the credit card market is expected to return to pre-COVID levels in 2021 with growth occurring across all risk tiers. Extenuating circumstances surrounding the pandemic, such as lockdowns and unemployment as well as continued uncertainty in the sector, will lead many card issuers to take a measured approach to lending. We expect this to happen in the form of smaller credit lines to account for a decrease in consumer spending. With balance growth remaining muted for the foreseeable future, delinquency levels will continue to improve and stay well below post-recessionary levels.”

• Paul Siegfried, senior vice president and TransUnion’s credit card line of business leader

Trend #3: Consumer Lending Market Will Continue a Steady Recovery Reminiscent of 2019 Record Levels

As unemployment declines and investor demand for unsecured installment loans continues its steady recovery, originations will trend upwards through 2021, inching back toward 2019’s record levels. Pent-up consumer demand for vacations and other large expenditures will further boost originations, especially as the economy begins to reopen. Q1 loan volumes are expected to reach 3.3 million, but in the second quarter originations are expected to grow to 4.2 million – well above the 2.6 million observed in the second quarter of the pandemic. This activity, however, still remains below the 4.8 million originations reported in Q2 2019. Delinquencies will increase slightly as forbearance periods start to expire.

Instant Analysis
“Consumer demand and investor-fueled lender supply are expected to continue a steady rebound and drive loan volumes back to healthy levels in 2021. Growth in home improvement loans for renovation projects will continue to be an attractive option for consumers as they adjust to extended work-from-home arrangements in the new year. Following historically low delinquency rates in 2020, 2021 rates are expected to inch up as stimulus programs expire and forbearance periods end across mortgages and other products. We do not, however, expect delinquency rates to markedly exceed levels seen in the past several years.”

• Liz Pagel, senior vice president and TransUnion’s consumer lending line of business leader

Trend #4: New Auto Loans Will Shift Toward Lower Risk Consumers

A double-digit decline and negative growth rate for new auto sales was observed throughout the first half of 2020. The decrease in auto sales is expected to flatten in 2021 – signaling underlying improvements to the health of the auto finance market. Origination activity in Q1 and Q2 2021 is expected to generate 6.8 million and 7.4 million new accounts, respectively, with a greater share of loans shifting to the prime and above risk tiers. This origination mix shift is a reflection of changing consumer demand and adjustments to auto lender strategies due to the pandemic. As subprime originations decline, the total share of non-prime balances is expected to gradually decrease throughout the year.

Instant Analysis
“New auto originations will shift toward lower risk consumers as auto lenders continue to grapple with the aftermath of the pandemic. However, the forecasted origination activity represents a fairly healthy rebound for the industry given the challenges seen in 2020. As long as supply issues do not persist, auto loan originators should expect a steady 2021. Performance should also stabilize as auto accommodations continue to decline – currently representing 3.8% of auto loans. While consumers with a mortgage forbearance may impact auto loan delinquencies, we are anticipating this to be relatively small. Over the years our research has shown that, especially in a time of need, many consumers prioritize auto payments more so than other credit products. And now, during the COVID-19 pandemic, it’s clear that many Americans will continue to value having access to a vehicle, as it is the lifeblood of many consumers.”

• Satyan Merchant, senior vice president and TransUnion’s auto line of business leader

Registration for a TransUnion webinar providing detailed 2021 projections can be accessed here. Additional resources for consumers looking to protect their credit during the COVID-19 pandemic can be found at transunion.com/covid-19.

About the TransUnion 2021 Forecast:
TransUnion’s forecasts are based on various economic assumptions, such as gross domestic product, home prices, personal disposable income and unemployment rates. The forecasts could change if there are unanticipated shocks to the economy, including further increases in the number of COVID-19 cases. Better-than-expected improvements in the economy, such as increases in GDP and disposable income, or quick deployment of the COVID-19 vaccine could also impact these forecasts.

About TransUnion (NYSE: TRU)
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