When economic times start to get challenging, often the last domino to fall is people’s car payments.
That’s because most people need a car to get to work or perform duties at their job. Without that car, they can’t work and without work, their income will dry up.
That’s why car repossessions are a sign that conditions are starting to get more serious. The consumer has already let their credit card balances climb and other bills go. They’ve cut back everywhere they can. Now they’re tapped out and can no longer afford the car either, despite how much they need it.
It is a sign that they are in real financial trouble.
These days, many people are evidently at this point, as car repossessions are on the rise, up by 23% in the first half of 2024 compared to the same period last year. That’s also 14% higher than pre-pandemic levels.
In June, 5.62% of subprime auto borrowers were at least 60 days late on payments, slightly below the record set in February.
The reasons for this include high interest rates, which have pushed monthly car payments to near-record highs, and broader consumer financial strain caused by rising rents, food costs, insurance premiums, etc.
A potential interest rate cut by the Federal Reserve in September could provide some relief by lowering borrowing costs, but we’ll have to wait and see what happens on that front.
In the meantime, these rising car repossessions are adding new volatility to the market, as it becomes clearer just how stretched the U.S. consumer actually is. Car ownership plays an integral role in consumer strength, which is why it’s one of the factors impacting volatility that we like to keep an eye on.
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