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Are Consumers Ready to Spend More? And Borrow More?

If you’re a banker, that’s what your colleagues think. Our latest quarterly survey of US and Canadian bank risk professionals finds that they expect consumers to spend more and borrow more over the next six months.

Our survey results are always fascinating to me because the consensus thinking of bankers usually comes through loud and clear. This quarter was no exception. Among the professionals we polled, 46% expect the amount of new credit requested by consumers to increase, while just 16% expect it to decrease. Similarly, 46% of bankers expect requests for credit line increases to go up, while just 8% expect such requests to go down.

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Moreover, we found that 53% of lenders polled expect credit card balances to increase over the next six months, while just 7% expect balances to decrease. The consumer appetite for spending, and a willingness to take on debt to support that spending, appears to be gaining strength. Evidence of this trend can also be seen in Commerce Department data – consumer spending rose .3% in August after rising .2% in July.

In this survey, we added an interesting question that we hadn’t asked in the past – which consumers are likely to fuel this anticipated growth in lending? Half of all respondents said that borrowers in the 30-39 age range will drive the most growth. Nearly a quarter of respondents (22%) expect borrowers aged 20-29 to be the largest source of growth. Only 18% of our survey takers feel that growth would be largest among borrowers aged 40 or older.

It’s not shocking that our respondents expect lending to grow most among the younger age groups. But it is a bit surprising that more than 70% of our respondents expect people under age 39 to account for most of the growth, particularly with underwriting standards for mortgages remaining high. The average FICO® Score for mortgages backed by Fannie and Freddie in June was 766. That’s 50 points above where it was in the early 2000s. Those underwriting standards make it a bit harder for first-time (often young) homebuyers to qualify for mortgages.

Also in the survey, we asked a set of questions about credit supply and demand. More than 70% of respondents expect supply to meet demand for new residential mortgages and small business loans in the upcoming six months. Over 80% expect supply to meet demand for mortgage refinancing, credit cards, auto loans and student loans. These are some of the highest figures we’ve ever seen in our survey. There were no loan types for which demand was expected to exceed supply.

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And lastly, when it comes to delinquency risk, the concern centered on one loan type: student loans. Nearly half of our respondents (49%) expect an increase in student loan delinquencies, while 15% expect a decrease. This is the eighth consecutive quarter in which there was significant concern about delinquencies on student loans. This concern doesn’t appear to be going away anytime soon.

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Get a detailed report about our survey results.

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