Consumers are reverting to the payment patterns they held before the Great Recession, according to one of the nation's three nationwide credit reporting bureaus.
A new report from TransUnion detailed how consumers have begun to once again pay their mortgages first each month and their auto loans and credit card loans later.
One hallmark of the Great Recession was a reversal of usual consumer payment behavior as consumers began making credit card and auto loan payments before the made mortgage payments.
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"We had previously determined that, beginning in 2008, consumers had a higher propensity to go delinquent on their mortgages than on their credit cards — a reversal of traditional payment patterns," said Steve Chaouki, co-author of the study and group vice president in TransUnion's financial services business unit.
"This occurred in an economic environment marked by the build-up and bursting of the housing bubble," Chaouki said.
"In fact, it is broadly believed that the shift in payment preferences was largely derived from the struggles of the housing market. For the first time since the housing bubble, we now see consumers valuing their mortgage payments as much as their credit cards, though auto loans remain the most valued of the three," he said.
TransUnion arrived at its hypotheses after examining average housing prices in major metropolitan areas along with the spread between credit card and mortgage loan delinquencies in those areas over the same periods.
Antoni Guitart, director of analytical services for TransUnion said the credit bureau does not survey consumers about their motivations, but argued that the consumer payment data supports several different theories about the reasons underlying changes in payment behavior.
First, the credit bureau found a strong correlation between the level of housing prices and payment behavior, with consumers in metropolitan areas which had not been hit as hard by the housing downturn not changing their behavior very much while consumers in hard-hit metropolitan areas changing their payment behavior quite a bit.
What TransUnion saw in metropolitan areas like Los Angeles, where housing prices dropped by a significant amount but then rebounded as well, was a large number of consumers starting paying their credit card bills first during the downturn but then saw the numbers return to previous patterns as home prices rose, Guitart explained.
But in cities where there had not been as large a drop or rebound, such as Dallas, consumer behavior remained largely unchanged with no significant changes in payment behaviors.
Consumers in metropolitan areas where there had been a housing price decline but not yet a strong recovery, such as Chicago, have also not yet returned to previous payment patterns, though their payment patterns have stabilized, Guitart said.
Guitart maintained that it appeared as though consumers paid earlier on mortgages they perceived as having stable or rising value as their real estate's prices rose while they paid later on mortgages they perceived as having declining value as home prices fell.
But he also acknowledged that other factors could have been playing a role in consumer's decision making.
For example, since the decline in housing prices had taken place at the same time as unemployment rose, consumers uncertain about their jobs could have chosen to make sure their credit cards remained paid up and paid down so that they would be available if needed.
Likewise, by the time housing prices started to rise again, credit card balances might have come down sufficiently so consumers felt less pressure to make those payments earlier.
"It's extremely difficult to understand consumer motivations exactly," Guitart observed.
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