We don’t want to be a harbinger of bad news as we head into the Christmas holidays, but foreclosures were up 187 percent year-on-year in August 2022 and rates have continued to rise steadily ever since. As a sign of our times, the terrible economy is forcing parents to tell their children that Santa Claus does not exist because they cannot afford Christmas presents. And if that didn’t depress you enough, there’s also news that car foreclosures are on the rise. Experian data shows that the percentage of auto loans that were 30 days past due was 2.2 percent in the third quarter of 2022. For comparison, during the Great Recession of 2009, over 4 percent of auto loans defaulted, according to NBC News. Meanwhile, data from the credit rating agency Fitch shows that the loan default rate among the lowest-income consumers now exceeds 2019 levels.
It’s worth noting that other consumer groups aren’t much better off, as they often default on their car payments. Ultimately, that’s understandable given that the average monthly payment for a new car has increased 26 percent since 2019 to $718 a month.
“These redemptions are for people who could afford that $500 or $600 a month two years ago, but now everything else in their life is more expensive,” said Ivan Drury, director of insights at car buying website Edmunds. “This is where we start to see the withdrawals, because it’s just everything else that’s nailing you.”
For this reason, the increase in car redemptions will intensify in 2023
Analysts have been sounding the alarm since last fall, highlighting that the western hemisphere is headed straight for stagflation. Unfortunately, the political class ignored the signs and did too little to fix the economy. Currently, major economic indicators are pointing to impending troubles. For example, manufacturing and retail activity declined in the third quarter of 2022, according to Tradeshift’s Index of Global Trade Health. In addition, data from the Commerce Department shows that US retail sales fell 0.6 percent in November. According to Bloomberg, this is the biggest drop in almost a year.
At the same time, industrial production in the US fell by 0.2 percent in November. And the vacancies also indicate problems as they fell in October. Job openings fell to 10.3 million in October from 10.7 million in September, according to the latest monthly Job Openings and Labor Turnover Survey (JOLTS) released by the Bureau of Labor Statistics.
To make matters worse, large corporations have announced hiring freezes and major layoffs for 2022 and the year ahead. Goldman Sachs, for example, will cut 8 percent of its staff. Amazon also plans to lay off 1 percent of its workforce, while DoorDash will also lay off 6 percent of its workforce. These are just a few examples, as many other companies have announced layoffs. In short, a recession is looming and American households are already feeling the financial pain.
Against this backdrop, lower-income households are struggling to pay their monthly bills. Families are clearly prioritizing basic necessities and mortgage payments, leaving many adults defaulting on their car loans and risking bad credit and foreclosures.
“This group of consumers, who are prime and subprime, are being hit very, very hard by inflation. This group of people didn’t have much disposable income. They had to finance a more expensive car and then they were hit with overall rising prices. There’s just a lot of stress,” Ryan Kelly, acting manager of the auto finance program for the CFPB, told NBC News.
Rise in car withdrawals: Here’s how car buyers can avoid a disaster
Although there is no one-size-fits-all financial recipe because everyone’s priorities, expenses, and financial situation are different, American adults can follow some simple steps to avoid disaster. For example, they can refinance the car loan, trade in their car, even sell it if they get a good deal, or they can renegotiate the loan terms with the lender. If this doesn’t work, it would be best to reach out to a family member and see if they can help with the cost. When you consider that millions of American millennials moved back to their parents’ homes in 2022 because they could no longer handle the rising costs, there’s no shame in turning to a parent or sibling for temporary financial support.
For those looking to buy a car now, the wisest option would be to wait until prices drop further. But if that doesn’t make sense and you need a car now, you should opt for cheaper models that are already on sale instead of buying your dream car or an outrageously expensive and trendy electric vehicle.
Sources: MarketWatch, New York Post, Fox Business, Yahoo! Finance, Bloomberg, NBC News, Mondo.
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