[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 dropping from 49,000 to 15,000, nearly stagnating. This raises concerns about whether a weak labor market might undermine consumer spending.

Meanwhile, delinquency rates have been rising since 2023, with the proportion of seriously overdue loans (over 90 days late) 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 the default risks in the U.S. by focusing on key areas such as credit cards, auto loans, and mortgages, examining whether these risks can remain manageable amid inflation crises, tariff shocks, and a K-shaped economy.

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 Pressure on the Private Sector

Despite the intense debate over U.S. debt issues, it’s important to note that the structural debt burden mainly affects the government sector, 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 relative to GDP has fallen to its lowest level since the 2000s; additionally, household debt payments as a share of disposable income remain at lows not seen in nearly 20 years. This indicates that the private sector’s 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 higher-income auto loan borrowers have stabilized, signaling that these are near their peak levels.
                                        

                                    

                                
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                                            Why is the private sector leverage healthy in the U.S. without 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 stay at low levels for nearly 20 years.
                                        

                                    

                                
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                                            Why have U.S. mortgage delinquencies remained low over the long term?
                                        
                                        

                                            💡 U.S. mortgage delinquency rates have remained low mainly because housing demand stopped deteriorating and rebounded since 2023, inventory and vacancy rates are stable, and structural changes post-2008, such as stricter risk controls and reduced floating-rate borrowing, have contributed.
                                        

                                    

                                
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                                            How has the Fed’s rate cuts affected the housing market momentum?
                                        
                                        

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

                                    

                                
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                                            What is the current situation of housing inventory and vacancy rates?
                                        
                                        

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

                                    

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

                                            💡 Trump’s policies are shifting toward “Make America Affordable Again,” introducing measures such as banning institutional investors from buying single-family homes and encouraging Fannie Mae and Freddie Mac to buy more MBS to suppress mortgage rates, helping stabilize home prices and support consumption among low- and middle-income households.
                                        

                                    

                                
                                                

                
                
                

                

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