LOS ANGELES, Calif. – When it comes to paying the bills, the mortgage is once again more of a priority for many U.S. homeowners than their credit cards.
That’s the conclusion of a study released Wednesday by credit reporting agency TransUnion, which examined about a decade’s worth of U.S. consumers’ payment data.
The shift comes as U.S. home values have been climbing, allowing many homeowners to build equity in their home and lifting others into positive equity after years owing more on their home than it was worth. An improving job market and greater access to credit cards also have contributed to the change.
“We are returning to the traditional trend as the forces in the marketplace that influence consumer payment preferences return to normal,” said Ezra Becker, co-author of the study and TransUnion’s vice-president of research and consulting.
Before 2008, mortgages historically had a lower late-payment rate than credit cards, according to the firm.
But by the fall of 2008, as the financial crisis hit and the housing downturn and recession worsened, the trend reversed.
The national unemployment rate began to climb while home prices tumbled. That left many homeowners in a financial bind. As a result, many began falling behind on their mortgage payments at a greater rate than on their credit cards.
“This was a measurable result of the economic environment, wherein many consumers were underwater on their mortgages and at the same time needed the liquidity afforded by credit cards to make ends meet,” Becker said.
By September 2008, 3.32 per cent of mortgages were at least 30 days overdue, slightly higher than the late-payment rate of credit cards at 3.29 per cent, according to the study.
Five years later, with home values rising, foreclosures in decline and unemployment easing as the economy steadily adds jobs, the trend has reversed again. The late-payment rate on mortgages fell to 1.71 per cent in December, compared with a rate of 1.83 per cent for credit cards, TransUnion said.
That payment hierarchy could reverse once more, should home values plummet again and unemployment surge, Ezra noted.
All told, the firm reviewed late-payment rates between 2003 and 2013 on mortgages, credit cards and auto loans among U.S. consumers with the three types of financial obligations.
While the late-payment rate on home loans has fallen below that of credit cards, both remain far higher than auto loans, suggesting that many consumers still place more of an emphasis on paying their auto loans on time than other debt obligations.
The late-payment rate on auto loans in December was 0.87 per cent, TransUnion said.
Overall, homeowners are doing a better job of making timely mortgage payments. The national late-payment rate on home loans in the last three months of 2013 slid to the lowest level in more than five years.
The last time the mortgage-delinquency rate was lower was the second quarter of 2008.
Even so, the mortgage-delinquency rate remains about twice as high as it was before the housing bubble burst in 2007. That suggests that many homeowners continue to struggle to make their payments. It also reflects that many home loans made during the housing boom remain unpaid but have yet to work their way through the foreclosure process.