mobile home construction

  • Delinquencies on mobile home loans have increased by two percentage points over the past year, according to research cited by UBS.
  • The rising delinquency rate, when combined with other areas of the consumer finance market showing signs of stress, suggests that there’s a two-speed economy. 

The mobile home market is showing signs of stress.

The delinquency rate on mobile home loans has increased by 200 basis points, or two percentage points, over the past year, according to research cited by UBS, with the 30-day-plus delinquency level now at around 5%, the highest level since 2005.

The increase in the number of struggling mobile home borrowers suggests that a large chunk of these individuals haven’t benefitted from the economic growth of the past few years, despite the current low level of unemployment. 

“We interpret this data to mean that these individuals have not largely benefitted from these macro-dynamics, and may also be disproportionately exposed to industries that have experienced compression – rather than expansion – in the current economic conditions, such as retail or some areas of energy extraction,” UBS said. 

Conventional single-family residential loan delinquencies haven’t seen a similar uptick, instead continuing their steady downward path through the post-recession recovery:

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This data represents a piece of a jigsaw puzzle that shows the condition of consumer finances in America. And the picture that’s emerging, according to UBS, is of a two-speed economy, with lower-income consumers and younger borrowers with substantial student debt moving at a slower pace than more affluent and established participants in the economy.

For example:

  • Around three in five consumers with an annual income below $40,000 indicate that their earnings barely cover or do not cover their expenses, according to a UBS survey. 
  • Lower-income earners are often renting and carrying non-mortgage debt, such as credit card, auto, and student debt, at levels similar to or higher than prior to the financial crisis. 
  • More than a third of these borrowers in this demographic report misrepresenting their financials in loan applications, according to a UBS survey. 
  • “While delinquency rates among student loans remain the highest of any consumer asset class, several other asset classes are beginning to inflect off of recent lows, despite broadly supportive economic conditions,” UBS said.
  • The recent tax reform in the US will likely benefit middle-income borrowers, but have limited benefits for lower-income borrowers. 

“We believe weakness in these two groups will drive higher credit losses at some stage over the next few years – particularly in credit card, installment and student loans – with macroeconomic inflection from job growth to job loss as a likely catalyst,” UBS said. 

SEE ALSO: A forgotten financial metric is closing in on crisis-era levels — and it could set everything ‘in reverse’

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