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Following each recession of the past two decades, credit use has rebounded in very specific ways. The shift in credit instruments in reaction to downturns provides some interesting and significant insights into the future of credit. For example, following the early-1990s' recession—during the dot-com boom years—first mortgages and vehicle loans increased steadily; the incidences of junior mortgages (second mortgages and home equity lines of credit) doubled. The proportion of households with education loans remained unchanged. Other forms of consumer credit (secured and unsecured loans and lines) declined.
The Y2K recession was followed by 9/11, the Bernie Madoff and Enron scandals, and the housing bubble. As a result, many Americans' worldview—their sense of security and certainty—changed irrevocably. During the first half of the postrecession period (through 2004), credit use remained relatively unchanged except for a sharp decline in the use of consumer credit. However, between 2004 and 2008, the number of households with first mortgages and junior mortgages increased dramatically. At the same time, the proportion of households with education loans remained the same; numbers of households with vehicle loans and consumer credit declined.
Not surprisingly, following the Great Recession of 2009, fewer households had either the wherewithal to buy a home or equity in their home against which to borrow—resulting in a consistent decline in mortgages. Vehicle loans declined in number until pent-up demand forced many households to replace aging vehicles as consumers' income and debt situations improved. In the past several years, vehicle sales have improved dramatically, resulting in an uptick in vehicle financing. As higher-education costs have increased significantly, so has the use of education loans. Other forms of credit such as secured and unsecured consumer loans and lines have also increased dramatically.
For about one-third of households, education loans will be increasingly dependent on government subsidies vulnerable to major political changes. Because of rising prices coupled with younger consumers' declining interest and ability to pay, vehicle acquisitions are shifting from sales to leasing. Home ownership, in decline since the Great Recession, and borrowing based on real estate will remain somewhat depressed. The focus of the November 2016 Segment Summary—Consumer-Credit Users—is on the one type of borrowing on the rise in spite of its higher costs.
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