Credit Tailwind Blew Stronger for Autos Than Homes

Bob Johnson: Credit availability is absolutely key for both the housing and the auto industry.

In this week's chart, we measure credit availability by using FICO credit scores on average approved mortgages or auto loans, and we compare that to what actually happens in real-world sales of autos or in housing starts.

Turning first to the auto industry, you can see in the chart where credit declined sharply between 2007 and 2009. While that credit fell dramatically, sales were off almost 40% over that same period of time. The good news is that credit availability has returned to almost where it was in 2007, and that has prompted auto sales to also move back to pre-recession levels--a very good state of affairs.

However, turning to the housing industry, the news isn't quite so good. In the housing industry, credit availability fell off even worse than it did in the auto industry, and consequently housing starts fell by more than 60%, which is worse than the auto industry fall-off at 40%. Credit availability has remained very, very tight. So housing starts have only recovered just about 65% of their pre-recession levels.

Looking forward, we expect that credit availability will not be as much of a tailwind as it has been over the last five years, in both the auto and the housing sectors, but for very different reasons.

In the auto sector, credit is already very loose, in fact looser than it was prior to the recession. Some might argue too loose. So we can't expect much of a tailwind there.

On the housing side, past history would suggest that perhaps things could loosen a little bit more, but recent banking regulations, including the implementation of Dodd-Frank, could very well limit the availability of mortgages more than some suspect, limiting the tailwind from mortgage availability.