A new study shows that more U.S. consumers, even in this post-recession slump, are putting their cars first when bill-paying time comes around — even over mortgages and credit card debt. American drivers seem to be saying, “we don’t mind tightening our belts if we need to, but darn it, we have places to go.”
Home no longer first priority
In 2006, an annual TransUnion consumer study found that mortgages came first for the vast majority of American consumers. However, since the recession things have changed in the American bill-paying hierarchy.
The current study, released Thursday, looked at the finances of 4 million U.S. consumers who were making payments on a car, on a home and on credit cards. It found that staying current on auto loans is now the first priory for most.
According to the study, only 10 percent of those surveyed were late on their car payments but up-to-date with home and card debt.
Credit cards now take a backseat
The findings are not unexpected. TransUnion found in 2011 that car loans had taken priority over mortgages. What makes the current report unique, according to TransUnion’s Ezra Becker, is that it shows making car payments also comes before credit card debt now for a significant number of Americans.
“The reversal in payment patterns between credit cards and mortgages has been well documented, but our findings were illuminating because it had not been previously clear that auto loans were considered a higher priority by consumers than both credit cards and mortgages.”
The study found that 39 percent of consumers who missed payments in 2011 were behind on mortgages, but paid up on their credit cards and car loans. Another 17 percent were late on card debt, but caught up on car and home loans.
Transportation essential for work
Becker speculated that the automobile has taken priority because “most people need a car to get to a job or to look for a job.”
Matt Saxton, a Maryland consumer on unpaid medical leave, has chosen to make his car payments over his other debts.
“I can work with the credit card companies. They won’t shut off or take away anything. I won’t have the ability to get to work or even get another car if they repossess this one.”
Falling cost of homes
The falling price of homes is also a likely contributor. According to the Standard & Poor’s/Case-Shiller home price index, homes in major U.S. cities have regressed to their 2002 prices.
Becker said the trend to pay car loans over mortgages was more acute in states that saw the largest drops in home prices:
“This preference for prioritizing auto loans before credit cards and mortgages was seen in all 50 states and the District of Columbia through 2011. However, the preference for paying auto loans was more pronounced in states like Florida and Michigan, which have seen severe drops in house prices and may have strong consumer affinities for autos, and less pronounced in states like Texas, where house prices have declined less.”
Timing could be a factor
Another factor contributing to the shift is that bill-payers have more breathing room with mortgages than they do with car loans. Foreclosing on a home can take years. Vehicles, however, are subject to repo after a payment is 90 days delinquent.
Of course we know this is not all just about finances. Americans love their cars, and they love driving, even in the face of unprecedented gas prices. Maybe even in times when we have to cut back everywhere else, we still are not willing to give up that one indulgence that keep us grounded, just like a dieter needs to snack once in a while.