[Market Brief] Can the US default risk be controlled? A comprehensive breakdown of credit cards, auto loans, and mortgages!

What we want you to know:

Yesterday, the U.S. January employment report was released. Although January’s non-farm payrolls exceeded expectations, after revisions to the 2025 annual benchmark, employment growth was revised down from +584,000 to +181,000, with the average monthly increase falling from 49,000 to 15,000, nearly stagnating. This raises concerns about whether a weak labor market might undermine consumer spending momentum.

Meanwhile, delinquency rates have been rising since 2023, with the proportion of seriously overdue loans (over 90 days overdue) increasing, especially in credit cards, auto loans, and student loans, indicating that some households’ financial resilience is gradually weakening. The latest figures released this week also show that delinquency rates remain high. Against the backdrop of high living costs, improving affordability may become a key factor for the Republican Party in the 2026 midterm elections.

In this article, we will analyze in detail whether default risks in key areas such as credit cards, auto loans, and mortgages can remain manageable amid inflation crises, tariff shocks, and a K-shaped economy in the United States.

1. Credit Cards and Auto Loans: High Delinquency Rates, but Expected to Improve

First, we focus on the sharply rising delinquency rates in credit cards and auto loans, discussing from two perspectives: overall leverage health and detailed delinquency data.

Overall Leverage Health: No Signs of Pressure in the Private Sector

Despite the intense discussions about U.S. debt issues, it’s important to note that the structural debt burden pressure mainly lies with the government, not the private sector. According to the Federal Reserve’s semiannual Financial Stability Report, in recent years, corporate and household debt as a percentage of GDP has continued to decline. Household debt as a share of GDP has fallen to its lowest level since the 2000s; additionally, household debt payments as a proportion of disposable income remain at lows not seen in nearly 20 years. This indicates that private sector leverage remains healthy, with no urgent need for deleveraging.

Delinquency Rates: Early Signs of Improvement Are Evident

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                            Click on questions to get answers from MM AI
                        

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                                            When will credit card and auto loan delinquencies improve?
                                        
                                        

                                            💡 The delinquency situation for credit cards and auto loans is expected to improve this year. The rising trend in mild delinquencies has weakened, credit card delinquency rates have fallen across all income groups, and middle-to-high income auto loan borrowers have stabilized, signaling that these are leading indicators close to their peak.
                                        

                                    

                                
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                                            Why has the leverage health of the U.S. private sector shown no signs of pressure?
                                        
                                        

                                            💡 The private sector’s leverage remains healthy because corporate and household debt as a percentage of GDP has continued to decline, household debt has fallen to its lowest point since the 2000s, and household debt payments as a share of disposable income remain at lows not seen in nearly 20 years.
                                        

                                    

                                
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                                            Why has the long-term mortgage delinquency rate remained low?
                                        
                                        

                                            💡 The long-term low mortgage delinquency rate is mainly due to the stabilization and recovery of housing demand since 2023, stable inventory and vacancy rates, and structural changes post-2008, such as stricter risk controls and reduced floating-rate borrowing.
                                        

                                    

                                
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                                            What impact has the Fed’s rate cuts had on the housing market?
                                        
                                        

                                            💡 As the rate cut cycle begins at the end of 2024, data from MBA mortgage applications show that applications for home purchases and refinancing have been rising since 2025, reflecting that the rate cuts are effectively boosting housing market momentum.
                                        

                                    

                                
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                                            Why are housing inventory and vacancy rates in the U.S. at current levels?
                                        
                                        

                                            💡 Although new home inventory is high, the existing home inventory accounting for over 80% remains at historically low levels, indicating a healthy overall housing market structure. Vacancy rates are stable, with the vacancy rate for homes for sale remaining at historic lows, and rental vacancy rates have recently slowed in growth but remain low.
                                        

                                    

                                
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                                            How do Trump administration policies affect the housing market and low- to middle-income families?
                                        
                                        

                                            💡 The Trump administration’s policies are shifting towards “Make America Affordable Again,” introducing favorable policies such as banning institutional investors from purchasing single-family homes and instructing Fannie Mae and Freddie Mac to expand MBS purchases to suppress mortgage rates, helping to stabilize home prices and support consumption among low- to middle-income households.
                                        



                
                
                

                

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