When will the economy come screeching to a halt?

[Mai72]

Report was just published on auto loan debt and it's not pretty.

http://blog.credit.com/2016/05/auto-loan-debt-tops-1-trillion-145118/

$1T in debt and rising. People are going for 72 months and longer so they can bring down their payments. This has lead to an increase in repossessions.

With $3T in student loan debt, expensive homes that people are buying and reckless spending its not going to be a pretty picture when the economy bust. It seems that many people have forgotten about 2007-08. IMO, we could very well have a repeat. It might even be 100X worse.

Finally, with Trump in the White House who knows what could take place.

 

[MomentsofSanity]

I'm not that worried about auto loan debt. Can't really parallel it to the housing bubble of the past. I buy a house I expect it to be worth more when I sell it. I'm investing in equity. If the market depresses then sure I'm in hot water. The same can't be said for a car. You buy a car you expect it to be worth nothing when you're done (simplistic I know). It is what it is. While Auto and student debt is increasing it won't be near as impactful.

 

[[DHT]Osiris]

Report was just published on auto loan debt and it's not pretty.

http://blog.credit.com/2016/05/auto-loan-debt-tops-1-trillion-145118/

$1T in debt and rising. People are going for 72 months and longer so they can bring down their payments. This has lead to an increase in repossessions.

With $3T in student loan debt, expensive homes that people are buying and reckless spending its not going to be a pretty picture when the economy bust. It seems that many people have forgotten about 2007-08. IMO, we could very well have a repeat. It might even be 100X worse.

Finally, with Trump in the White House who knows what could take place.

I love how that page has two different ads for credit cards, and a 'find out more!' article on how to get an auto loan with bad credit.

 

[[DHT]Osiris]

I'm not that worried about auto loan debt. Can't really parallel it to the housing bubble of the past. I buy a house I expect it to be worth more when I sell it. I'm investing in equity. If the market depresses then sure I'm in hot water. The same can't be said for a car. You buy a car you expect it to be worth nothing when you're done (simplistic I know). It is what it is. While Auto and student debt is increasing it won't be near as impactful.

Something could be said about the rising cost of new vehicles contributing to the continued use/refurbishment of older vehicles, especially with increased longevity over the last decade of vehicles manufactured, resulting in a downturn from the auto manufacturers. This could result in even more offshoring, lowering of quality, even higher costs, or another bailout. This is just one sector of many though that's getting more expensive as incomes are flatlining.

 

[Ken g6]

I'm not that worried about auto loan debt. Can't really parallel it to the housing bubble of the past. I buy a house I expect it to be worth more when I sell it. I'm investing in equity. If the market depresses then sure I'm in hot water. The same can't be said for a car. You buy a car you expect it to be worth nothing when you're done (simplistic I know). It is what it is. While Auto and student debt is increasing it won't be near as impactful.

This, plus it's easy to haul a "foreclosed" car away and sell it to a used car dealer. They even put tracking software on some cars with loans these days. It's rarely easy to haul a house to somewhere it can be re-sold.

 

[MomentsofSanity]

This, plus it's easy to haul a "foreclosed" car away and sell it to a used car dealer. They even put tracking software on some cars with loans these days. It's rarely easy to haul a house to somewhere it can be re-sold.

Yup. And they know that most likely they will recover their costs between the interest you paid up until you stopped paying and the resale value upon repossession. Unless it's a 0% rate of course but most likely if you're defaulting you wouldn't have been qualifying for that rate unless a catastrophic life event happened.

 

[interchange]

The housing bubble burst mainly because those subprime mortgages were secondarily sold as mortage-backed securities without an accurate reflection of risk -- not even so terrible until enough people defaulted so that:
1. new housing supply + foreclosed homes significantly unexpectedly increased supply
2. subprime mortgages were not so easily obtained so that demand significantly unexpectedly increased
3. prices started crashing as a result, and now all of a sudden those supposedly low risk MBSs were no longer secure since everyone was upside-down

We'll still have housing market corrections, but lending is not as easy and mortgage backed securities are not going to create bigger financial crises when the correction hits.

For a variety of reasons, the auto industry doesn't carry the same risk. There's lots of subprime lending, but those people are getting ripped off hardcore and getting their crappy vehicles repossessed and resold left and right. It's bad because it financially screws lower income people, but they aren't causing a bubble. Of course, people without subprime auto loans can start defaulting, but if that starts to increase then they'll just adjust the interest rates for auto loans. Those loans aren't being resold with an expectation that, if someone defaults, they won't lose money on resale of the repo'd vehicle.

Student loans...That's a bigger concern for me. Although it's more like a social security funding crisis than a mortgage bubble. We are lending a whole lot of money that will never be paid back and there is no qualification for the lending. Coincidentally, though not independently, cost of attendance of college has significantly risen.

As a government, we need to either make higher education free, or we need to stop giving hundreds of thousands of dollars in minimal interest rate loans to 19 year olds.

 

[Mai72]

I'm not that worried about auto loan debt. Can't really parallel it to the housing bubble of the past. I buy a house I expect it to be worth more when I sell it. I'm investing in equity. If the market depresses then sure I'm in hot water. The same can't be said for a car. You buy a car you expect it to be worth nothing when you're done (simplistic I know). It is what it is. While Auto and student debt is increasing it won't be near as impactful.

Yes, but if many Americans are strapped with student loan debt, $500 monthly car payments, etc. People are less likely to spend. Also, there is no guarantee that the home you bought will go up in value. In fact, historically homes have only gone up 1% every year.

 

[Fern]

I'm not that worried about auto loan debt. Can't really parallel it to the housing bubble of the past. I buy a house I expect it to be worth more when I sell it. I'm investing in equity. If the market depresses then sure I'm in hot water. The same can't be said for a car. You buy a car you expect it to be worth nothing when you're done (simplistic I know). It is what it is. While Auto and student debt is increasing it won't be near as impactful.

Not following your thinking here.

Somehow $1T in auto loan is not really a problem, because unlike the home mortgage market, the underlying assets (autos) have no value?

That seems an argument for why it's worse.

Fern

 

[nickqt]

Not following your thinking here.

Somehow $1T in auto loan is not really a problem, because unlike the home mortgage market, the underlying assets (autos) have no value?

That seems an argument for why it's worse.

Fern

The mortgage crisis was a lot more than people defaulting on their home loan. The point of cars inherently losing value, compared to homes, is that you don't typically sign a 30 year mortgage on your car assuming that the car is going to appreciate in value over 30 years.

But more importantly when discussing why mortgage defaults nearly destroyed the economy...are bankers selling packages of auto loan titles as securities to other bankers and the public? Are those same bankers also betting on those packages of auto loan titles? Are those same bankers also selling those bets? Are insurance companies writing insurance policies to cover the auto-loan-titles as securities, along with the bets? To the tune of TRILLIONS of dollars in excess of the original mortgages?

$1T in student loan defaults essentially hits the government, as the private student loan companies are guaranteed $ if and when people default.

To destroy an economy, you need bankers operating just-within-the-law, "innovating" as they go. They aren't doing that with auto loans and student loan debt, as far as I know. Not to say massive defaults wouldn't mess up the economy, but it wouldn't destroy the economy the same was the mortgage crisis almost did.

 

[Meghan54]

Let's see....17M cars sold in the U.S. last year, just like the year before. And auto loans are totaling only $1T again?

Now, I understand car sales include leases, govt. purchases, fleet sales, but even if you only count half of the yearly sales as private sales, that's still a tad over 8M cars a year being sold to citizens. And just 2015 and 2016 added together would total 17M, if you're following my scenario.

Now, how much would be owed on those 17M cars sold, per my scenario, to citizens? It'd average under $60/car.

So what's so bad about $1T in auto loan debt, considering the health of auto sales and the underlying economy?

 

[cyclohexane]

Depending on where you are. Here in Massachusetts, companies can't find enough people to hire. In some industries, there is basically full employment.

 

[esquared]

Let's see....17M cars sold in the U.S. last year, just like the year before. And auto loans are totaling only $1T again?

Now, I understand car sales include leases, govt. purchases, fleet sales, but even if you only count half of the yearly sales as private sales, that's still a tad over 8M cars a year being sold to citizens. And just 2015 and 2016 added together would total 17M, if you're following my scenario.

Now, how much would be owed on those 17M cars sold, per my scenario, to citizens? It'd average under $60/car.

So what's so bad about $1T in auto loan debt, considering the health of auto sales and the underlying economy?

You're off a a few zero's, unless I am missing your point.
1Trillion /17 million is 58,823/car

 

[Ventanni]

People don't hold their wealth in cars like they do real estate. That's why the real estate crash was so devastating.

As for the US economy crashing, not likely. Besides, why would anyone even remotely want that?

 

[BurnItDwn]

You're off a a few zero's, unless I am missing your point.
1Trillion /17 million is 58,823/car

Im not sure the timelines are lining up ...
I intepret it as 1 trillion total car loans .. 17m cars per year, but many loans exist from previous years ...

 

[momeNt]

Not following your thinking here.

Somehow $1T in auto loan is not really a problem, because unlike the home mortgage market, the underlying assets (autos) have no value?

That seems an argument for why it's worse.

Fern

I think it is more about the value of the asset being more readily understood. The housing crisis created a value and debt bubble. Auto loans should really only create a debt bubble, cars have elastic supply so increased demand should not change the price nearly as much as how increased demand raised the prices of homes.

 

[fskimospy]

I think it is more about the value of the asset being more readily understood. The housing crisis created a value and debt bubble. Auto loans should really only create a debt bubble, cars have elastic supply so increased demand should not change the price nearly as much as how increased demand raised the prices of homes.

Yes this very much. The reason the financial crisis happened was (broadly) that the perceived value of those MBSes/houses/etc were radically wrong and so everything that was based off them happened to be wrong too, meaning meltdown city. People aren't getting loans on a car for $200k when it's only worth $50k. Doesn't mean high outstanding car loan balances can't be a problem but it's hard to imagine them being another housing crash. (then again I guess that's what people said about the housing crash)

The economy seems to be doing pretty well right now and I don't see any signs of a major slowdown or crash in the near term future.

 

[MomentsofSanity]

I'm late to the party. My replies have already been said by others!