Upside Down Cars, Replace Homes

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We heard so much about the upside-down home in the years since the financial crisis.  From 2008-2013, many Americans found themselves in homes with negative equity, they owed more to the bank than they could sell their property for.   Today, after eight years of an easy money gravy train from the Federal Reserve – too low interest rates for far too long – we’re seeing a surge in defaults in Auto Loans, Commercial Real Estate, Credit Card Receivables and Student Loans.

Average Percentage of Auto Loans with Negative Equity

2017: 34.1%*
2016: 32.2%
2015: 28.3%
2014: 27.1%
2013: 24.6%
2012: 23.3%
2011: 21.8%
2010: 19.2%
2009: 24.1%
2008: 26.1%**
2007: 25.9%

Edmunds, FED data

**Financial Crisis high
*At the current pace of defaults, 2017 projection

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In Q4, over 32% of all “trade ins”  toward the purchase of a new car were under water, an all time record.  In Q4 of last year we witnessed a sharp deterioration in U.S. consumer credit quality.   This by no means is on the same scale of the 2008-9 financial crisis, but we expect the current debacle to be drawn out and have implications for U.S. equities.  Pick up our latest report on consumer credit, click on the link below.

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