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Gen Z Coming Of Age In Credit Markets

At the mid-point of 2023, Gen Z consumers (born between 1995 and 2005) increasingly find themselves with new access to credit products. The newly released Q2 2023 Quarterly Credit Industry Insights Report (CIIR) from TransUnion (NYSE: TRU) shows that relative to the consumer population as a whole, Gen Z consumers continue to turn to bankcards and unsecured personal loans even as lenders have begun to tighten underwriting.

TransUnion’s most recent Consumer Pulse findings from July 2023 found that 50% of Gen Z borrowers – compared to 32% for the entire population – are planning to apply for new credit or refinance existing credit (e.g., student loan, credit card, personal loan, car loan/lease, mortgage) within the next year. This percentage is a marked increase from the 41% of Gen Z consumers who said they planned to apply for credit or refinance in the July 2022 report.

“It makes sense to see Gen Z consumers’ use of credit cards and personal loans increase relative to consumers as a whole as they age into financial independence,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “Like the overall population, many Gen Z borrowers are facing the same financial challenges brought on by high interest rates and inflation. As a result, they are tapping into these available credit products to help them cope with rising expenses and the tightening of their monthly budgets.”

Bankcard balances once again reached a new record high of $963 billion in Q2 2023, up 17.4% year-over-year (YoY). Among Gen Z consumers, total balances increased 51.9% YoY and now stands at $55 billion, representing 5.7% of all balances. Unsecured personal loan originations fell overall YoY for the second consecutive quarter, down 16.1%. Within the overall population, originations among Gen Z consumers were 493K in Q1 2023, representing a smaller 7.6% decrease YoY.

Gen Z Total Credit Card Balances and Share of Total Balances Are Up YoY

Key MetricsQ2 2023Q2 2022YoY% Change
 Total Credit Card Balances (Bankcard)$963 billion$821 billion  17.4%
Gen Z Total Credit Card Balances (Bankcard)$55 billion$36 billion51.9%
Gen Z Share of Credit Card Balances (Bankcard)  5.7%  4.4%  29.5%

The report also found that lenders are continuing to increasingly focus on less risky credit tiers when considering new originations across a number of credit products, particularly impacting subprime borrowers. For instance, auto originations in Q1 2023 were down 11.6% among subprime borrowers YoY – and down 21.3% as compared to pre-pandemic 2019. Among unsecured personal loans, subprime originations for Q1 2023 were down 26.1% YoY.

Also, total mortgage balances fell to $11.7T in Q2 2023, down slightly from last quarter’s record high but still 4.3% up YoY. This represented the first quarterly decline in total mortgage balances since 2015. Mortgage originations continue their decline, once again falling to a record low of 899K in Q1 2023, down 59% YoY from 2.2M a year ago. This represents the second largest annual decline on record. Purchases made up 87% of the volume in Q1 2023 with 780K originations (down by 40% YoY from 1.3M in Q1 2022). Overall refinance was down by 86% from 870K to 121K. Rate and term refinance originations decreased 93% YoY, down from 305K in Q1 2022 to just 23K in Q1 2023. This marks the third consecutive quarterly record low. Cash-Out refinance originations also fell to a new record low in Q1 2023, down 83% YoY from 565K to 98K. Home equity originations remain in line with last year’s historically high levels, with HELOC originations falling 14% YoY to 252K in Q1 2023 but with HELOAN originations up 18% (from 203K to 240K) over the same period. Mortgage delinquencies displayed a slight YoY increase, with 60+ DPD delinquencies rising 14% to 0.96% in Q2 2023, representing the fifth consecutive quarter of YoY increases but still below pre-pandemic levels.

“Mortgage rates higher than those in recent history continue to lend pause to potential borrowers, resulting in historically low mortgage originations. Demand for refinance continues to be the hardest hit by these elevated rates,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “Given that the large majority of existing mortgages have rates below 6%, there is no incentive for homeowners to refinance their existing lower-than-current-rates mortgage and enter into a new, costlier mortgage. However, among those who have refinanced, the vast majority (81%) opted for cash-out, indicating that consumers remain interested in tapping into the equity in their homes. It remains to be seen if an expected moderation in mortgage rates in the second half of 2023 could potentially result in an uptick in refinance activity. Home equity products continue to remain viable options for consumers looking to utilize their tappable equity to pay down higher interest debt, with consumer interest in HELOANs in particular, on the rise this year. Despite a fifth consecutive quarter of increasing delinquency levels, they still remain below historical norms. This remains a trend worth watching particularly as we continue to observe the effects of inflation on consumers’ wallets.”

Q2 2023 Mortgage Trends

Mortgage Lending MetricQ2 2023Q2 2022Q2 2021Q2 2020
  Number of Mortgage Loans  52.5 million  51.8 million  51.2 million  50.7 million
Borrower-Level Delinquency Rate (60+ DPD)    0.89%    0.77%    0.70 %    1.06%
Prior Quarter Originations*0.9 million2.2 million3.9 million2.2 million
Average Balance of New Mortgage Loans*    $326,214    $322,631    $298,115    $291,420
Average Balance per Consumer$253,838$246,091$229,009$216,895
Total Balances of All Mortgage Loans  $11.7 trillion  $11.2 trillion  $10.3 trillion  $9.6 trillion
Number of HELOC Originations*  251,671  291,736  207,422  243,370
Number of Home Equity loan Originations*    239,764               203,093             157,159          148,727