Credit Card Delinquencies and Apartment Price Dynamics

Key Highlights

• A strong negative correlation is initially observed between credit card delinquencies and the Apartment Price Index (-.76).
• The analysis reveals a shift from a strong inverse relationship to a marginal positive correlation over extended lags, peaking at +0.2
• These findings suggest that credit card delinquencies move in near real time with the apartment price index.?

Ponte Vedra, FL - This week, our research focuses on discerning how fluctuations in credit card delinquencies might ripple through the multifamily real estate market. Intuitively, one might expect a direct and immediate correlation. This is essentially what we found. We pulled data from the Federal Reserve of St Louis to analyze the relationship between credit card delinquencies and the apartment price index in the US. The chart below is a time series of the Year over Year (YoY) change between the 2. The negative correlation is pretty apparent. One tends to go up as the other goes down, and vice versa. Meaning, credit card delinquencies tend to fall at the same time that apartment prices are rising.?

Since our main objective is usually to identify leading indicators for the apartment price index, we next lagged credit card delinquencies to see if they may be an earlier predictor of where apartment prices are heading. Unfortunately, we did not find that credit card delinquencies provide much of a lead time for apartment prices. In the chart below, you can see the strongest correlation is really between time zero and a 1 quarter lag [ 0 Quarters Lag: -0.7538

1 Quarter Lag: -0.7597]. The slightly stronger correlation at quarter 1 is not much of a leading indicator, but it does imply that apartment prices will not rebound until credit card delinquencies stop rising.?

The moderately positive correlation plateauing around quarter 10 is likely indicative of credit cycles and includes a lot of noise.? We don’t place too much emphasis on the relationship going from negative to positive. It makes sense that apartment prices would rebound a couple of years after credit card delinquencies have topped out. To illustrate the small strengthening of the negative correlation with a one quarter lag (making credit card delinquencies a one month leading indicator of apartment prices), we’ve included one last time series chart below. Here you can see that the negative correlation is slightly more pronounced, but it’s safe to say that credit card delinquencies are more of a coincident indicator for apartment prices than they are a leading indicator. Nevertheless, we believe delinquencies are an important indicator to watch.

Conclusion

Our analysis reveals a strong negative correlation between credit card delinquencies and the Apartment Price Index, particularly pronounced at a one-quarter lag. This finding suggests that changes in credit card delinquencies and apartment prices occur almost simultaneously, with delinquencies slightly leading the way. While the correlation shifts to a mild positive at longer lags, this is more reflective of broader economic cycles than a direct relationship. The key takeaway is that while credit card delinquencies don't provide a significant lead time as a predictive indicator for apartment prices, they are a crucial coincident indicator. Their close tracking with real estate trends underscores their importance in real estate market analysis. A deterioration in delinquencies is likely a sign that apartment prices in the broader market have yet to stabilize.

by Brian Underdahl, Chief Analytics Officer & Jackson Burks, Economic Analyst Intern

Nuvo Capital Partners