By Vicki Needham - 07/09/13 01:44 PM EDT
Delinquency rates have fallen steadily, as incomes have risen, since peaking shortly after the recession ended four years ago.
"Sharply lower delinquency levels reflect improving consumer balance sheets, steady job creation and a continuing increase in household wealth,” said James Chessen, ABA’s chief economist.
ABA tracks credit cards and loans issued only by banks.
Delinquency rates in eight fixed-term installment loan categories — such as personal, auto and boat loans — fell to 1.70 percent, the lowest level since December 2004 and well below the 15-year average of 2.37 percent.
The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
Chessen argues that rising wealth and improving consumer confidence have played a role in the lower delinquency rates.
“Household net worth rebounded in the first quarter, rising above its pre-recession peak for the first time in over five years,” Chessen said.
“Rising home and stock prices create a wealth effect that boosts consumer confidence, which contributes to healthier finances and a greater ability to pay down debt.”
Chessen noted that delinquencies in two home-related loan categories — property improvement loans and home equity loans — fell in the first quarter, a positive sign as the housing market continues its gradual recovery.
“Positive trends in home-related delinquencies reflect a stronger economy and rebounding home prices,” Chessen said.
“While this improvement is encouraging, it will take a long time for delinquencies to work their way through the system and return to more normal levels.”
Meanwhile, though, delinquencies for home-equity lines of credit were one of only two categories that increased during the first quarter.
“An increasing number of home equity lines of credit have gone from interest-only to fully amortizing,” Chessen said.
“This results in a payment shock for some borrowers who must adjust to paying down the principal, along with the interest.”
Still, despite the improvement, Chessen cautioned that delinquencies will only continue to drop with better job creation and improving consumer balance sheets.
“The future pace of delinquencies depends on a steadily improving labor market and strong financial health for consumers,” Chessen said.
“This will allow consumers to more easily meet their debt obligations.”