Late payments on mortgages are expected to keep dropping and credit is expected to remain strong next year, in part because housing prices remain healthy in most areas, according to TransUnion.
Mortgage delinquencies will slip to 1.45% by the end of next year from 1.62% this year, the company forecast.
Among other trends likely to persist next year is an increase in home equity withdrawal, according to Joe Mellman, a senior vice president at TransUnion.
Increased home equity lending can make it more likely that loan-to-value ratios will rise, and put the kind of downward pressure on credit that could lead to more delinquencies.
But because home prices are rising as equity is being withdrawn, home equity lending is putting less pressure on LTVs than it otherwise would, Mellman said. Home prices are expected to keep climbing through 2021, according to forecasts from the SP CoreLogic Case Shiller index.
So long as those price gains don’t outstrip borrowers’ income, rising home prices are unlikely to represent a housing bubble.
“We’re not there, at least not nationally, although there may be local markets where it’s getting a little frothy. These are places like San Francisco and potentially even areas of New York,” Mellman said.
But consumer debt levels may bear watching on an individual basis in the coming year. These are historically high and if they outpace existing or future income they can be a concern.
Student loan debt, for example, has been performing particularly poorly in instances where borrowers fail to graduate, he noted.