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CardHub’s Credit Predictions for 2015

CardHub Predictions 15B

A crystal ball is a valuable thing. After all, if any of us truly had one, we could make a killing in the stock market. But while 20-20 vision is ultimately reserved for hindsight and no one can actually predict the future, we can indeed make some educated guesses as to what the coming months will hold for our wallets.

Doing so is especially important as we prepare to celebrate the holidays, ring in the New Year, and turn the page on 2014 because it will enable us to chart a path toward financial success in 2015 and away from missteps and money loss. With that in mind, CardHub’s editors have consulted a number of prominent financial experts in making predictions for what 2015 has in store for the credit markets, from debt levels to interest rates.

You can check them out below, along with a breakdown of how our prognostication has fared in previous years (we boast an average GPA of 3.62!). Hopefully this information will put you in a position to maximize the value of credit in the coming year…almost as if you know what’s coming.

2015 Predictions

  1. Interest Rates Will Rise But Remain Near Record Lows
  2. The Federal Reserve has kept short-term interest rates near zero for some time now, and there is little reason to expect significant changes in this regard as we enter 2015, despite the Fed recently curtailing its bond-buying program. That’s because the Fed has also pledged to suppress rates for a “considerable time.”

    With that being said, there is a divide among the experts we consulted in terms of the fate of rates in the New Year. Most of them believe that credit card interest rates will hold steady, including Matt R. Sheridan, a senior lecturer in finance at The Ohio State University, who says, “I do not expect a meaningful rise in rates in 2015. The credit card companies have strong pricing power with Libor falling and improving fundamentals. … In addition, with oil prices down almost 30% it is reasonable to expect strong consumer spending in the coming months which will boost credit card transactions.”

    A few others, however, foresee increases of 1 to 2 percentage points in 2015. “I expect short term rates to rise during 2015, and hence credit card interest rates to rise,” says Hal Heaton, the Denny Brown Professor of Finance at Brigham Young University. “The forward rates on short term rates are looking at about a 1% (100 basis point) rise during 2015.”
    With that in mind, it’s fair to expect slight increases in average rates, yet an overall market where it is still very inexpensive to borrow.

  3. Credit Will Be Increasingly Available
  4. All of the experts we consulted expect credit to be in greater abundance in 2015 due to a confluence of factors, from the improvement of the economy and household balance sheets to the need for banks to boost profits in the absence of significantly higher interest rates. So, if you have been unable to open a credit card of late, you might have more luck in the coming year.

    “[Credit will be] modestly more available, since bank credit quality and capital adequacy levels are much improved over 2012 and 2013, the U.S. economy is growing (albeit slowly), the unemployment rate is falling, and commercial bank appetites for risk-taking is vastly improved from levels observed in 2009 through 2013,” says D. Anthony Plath, an assistant professor of finance at the University of North Carolina at Charlotte. “In addition, the ability of banks to continue boosting profits through loan reserve release is just about over, and operating costs in the industry are currently quite low for most banks, so the only way for banks to post profit increases in 2015 and 2016 is through enhanced revenue generation.”

  5. We Will Rack Up $60 Billion in Credit Card Debt
  6. While many economic indicators are painting a relatively rosy picture of our economic trajectory, credit card debt levels are one metric offering cause for concern. We’ve steadily added more and more credit card debt over the past three years, from a $36.8 billion build-up in 2012 to $38.8 billion in 2013 and now a projected $54.8 in 2014. We can only expect this downhill slide to continue in 2015, as consumers clearly have not learned anything about the dangers of overleveraging from the trials and tribulations of the Great Recession.

    Our panel of experts tends to agree with this assessment. Ryan M. Brewer, assistant professor of finance at IUPUI Columbus, believes that, “Consumer debt levels will rise slightly as consumer confidence continues its slightly upward trend going forward. Americans will take on a bit more debt as they begin to see wages rise and jobs continue to be comparatively more available versus in recent times.”

  7. Apple Pay Will Gain Market Share
  8. In recent years, we have forecast the mobile wallet industry gaining little traction with consumers. This year appears to be different, however, following the high-profile release of Apple Pay. Not only did Apple Pay hit the market with a great deal of hype, but early returns have shown the system to be a success at the relatively small number of stores equipped to replace it. As more stores come online and as Apple Pay-equipped devices further permeate the market, we can only expect adoption to increase significantly – further extending the lead Apple has established for itself over the rest of the mobile payments market.

  9. Checking Account Overdrafts Will Be Regulated as Credit
  10. The end of 2014 saw the Consumer Financial Protection Bureau introduce a new set of rules for the prepaid card market. Among them are a number of provisions that classify overdraft protection as an extension of credit and extend credit-related underwriting rules to prepaid cards as a result. This, of course, begs the question of what will become of checking account overdraft rules.

    We expect them to get the same treatment as prepaid cards, much to the chagrin of the banking industry. That means banks will have to evaluate customers’ ability to pay prior to offering them overdraft protection as well as send them regular statements when they avail themselves of the service and refrain from automatically using one’s balance to pay the overdraft bill, among other requirements.

  11. Chip Cards Will Make a Big Splash
  12. Chip-based credit cards have slowly crept into the consciousness of the general public, as more and more financial institutions begin to offer them to U.S. markets in the face of high-profile data breaches and impending changes to card network rules. This process will only intensify in 2015, as fraud liability rules that will transfer the burden of paying for unauthorized charges from banks to merchants who have not updated their payment terminals to chip card readers are scheduled to take effect in October. The more chip-based cards and chip card readers are on the market, the harder it will be for fraudsters to steal credit card information.

  13. Data Breaches Will Continue to Wreak Havoc
  14. While some may refer to 2014 as the Year of the Data Breach, such a label displays an inherent level of optimism that is unlikely to prove accurate. The types of massive data breaches that afflicted the likes of Michael’s, P.F. Chang’s and Home Depot will decline yet undoubtedly continue as the calendar turns to 2015, fostering consumer concern over privacy and fraudulent money loss, creating a public relations nightmare for retailers, and putting financial pressure on banks. These intrusions simply appear to be a fact of life in modern commerce, something we must learn to adapt to rather than solve completely.

    “We live in an era where data breaches are not an IF, they’re a WHEN,” says Mike Whitman, Program Coordinator for BBA-Information Security and Assurance at Kennesaw State University. “Perfect security is a myth. Any organization, any individual can be the target of a data breach.”

  15. Rewards Will Continue to Be Bountiful
  16. Rewards remained strong in 2014, with the value of both cash back and points/miles initial bonuses increasing 7% – 18% relative to 2013. In fact, not only did the best initial bonuses on the market remain available, but the upper reaches of the rewards market got even more crowded as newly competitive offers were introduced. And while the average base earn rate for cash back credit cards fell about 4%, the value of ongoing points/miles crept up about 1%.

    We expect similarly little change in the value of rewards in 2015. You see, while many of the best customers on the market have already availed themselves of a lucrative initial bonus deal, these offers – together with attractive ongoing earning rates, preferably across all transactions – have proven especially adept at catching the attention of customers and leading them to switch allegiances to a new credit card company. In this post-recession environment, in which the most wealthy and responsible customers are so valuable, it is unlikely that issuers will remove their best bait so soon.

  17. The Real Estate Market Will Improve
  18. While the real estate market has plateaued of late, failing to truly usher the country out of the recession it helped create, most estimates are optimistic for 2015. Modest improvements are expected thanks to interest rates that will remain near record lows as well as a more robust job market, pent-up purchasing demand, and increased credit availability due to new mortgage guidelines.

    For example, Robert S. Chirinko, professor of finance at the University of Illinois at Chicago, foresees “a slight rise in rates, as the effects of QE dissipate and the housing recovery proceeds slowly.”

  19. Private Mortgage Insurance Will Take Center Stage
  20. Fannie Mae and Freddie Mac recently announced new underwriting rules that reduce the required down payment for homebuyers from 5% to 3%. This will serve to increase the number of people purchasing a home with less than a 20% down payment and therefore in the market for mortgage insurance. FHA-backed loans were the preferred means of satisfying this requirement during the Great Recession, but the cost of FHA premiums has nearly doubled in the past few years, according to WalletHub’s latest Mortgage Insurance Report. Now, consumers can save up to $12,000 in just the first five years of having their loan by opting for the combination of a conventional mortgage and private mortgage insurance rather than an FHA loan. More and more consumers will wake up to the realities of this tradeoff as the real estate market improves, which should drastically increase the popularity of PMI.

Grading Previous Predictions

We like to hold ourselves accountable here at CardHub. That’s why we revisit our annual predictions at the end of each year and grade our prognostication. You can check out our report card below.

Grading Previous Predictions

Ask The Experts: Credit in 2015

CardHub’s editors aren’t the only ones with an inkling about what might come of the credit markets in 2015. So, for added insight into the issue, we turned to a panel of experts in the fields of personal finance, finance and consumer studies. You can check out the questions we asked them as well as their responses below.

  1. Do you expect credit card interest rates to rise in 2015? If so, by how much?
  2. Do you believe credit will become more or less available in 2015, and why?
  3. Do you expect consumer debt levels to rise, fall or stay the same in 2015?
  4. What do you expect from mortgage rates and mortgage availability in 2015?
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Matt R. Sheridan

Senior Lecturer in Finance, Fisher College of Business, Ohio State UniversityDo you expect credit card interest rates to rise in 2015? If so, by how much?

Due to credit card interest spreads (over 3 month Libor) hovering above their historical levels, I do not expect a meaningful rise in rates in 2015. The credit card companies have strong pricing power with Libor falling and improving fundamentals. Credit card companies are reporting that delinquencies are at a 23-year low as the unemployment rate, underemployment rate, and initial jobless claims continue to trend down. In addition, with oil prices down almost 30% it is reasonable to expect strong consumer spending in the coming months which will boost credit card transactions.

Do you believe credit will become more or less available in 2015, and why?

Due to low delinquency rates, improving employment numbers, and projected increased consumer spending, I expect credit will become more available in the US in 2015.

Do you expect consumer debt levels to rise, fall or stay the same in 2015?

With consumer confidence reaching a 7 year high, the unemployment picture improving, and oil prices declining, I expect increased consumer spending in 2015. Unfortunately, wages are barely increasing and about 4% of the labor force is working part time when they want to work full time. I expect debt levels to increase in 2015 due to increased consumer spending while wage growth remains low. If oil prices remain low through 2015, this would increase disposable income for the average US family and partially offset a rise in consumer debt levels.

What do you expect from mortgage rates and mortgage availability in 2015?

The 30-year fixed rate remains extremely low on a historical basis. Even with mortgage rates around 4%, the housing market has not been a big driver in the U.S. recovery up to this point. It is possible that when the FED raises the Fed Funds Rate, the Treasury yield curve will flatten and the 10-year point could stay suppressed, which would keep mortgage rates low. Even in a best case scenario, I would expect mortgage rates to rise in 2015.

Banks are seeing borrowers’ credit improving with home prices rising. The credit pendulum for the retail borrower has started to swing from the extremely strict underwriting requirements, which should increase mortgage availability in 2015.
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James E. Burroughs

Rolls-Royce Commonwealth Professor of Commerce; Area Coordinator-Marketing, McIntire School of Commerce, University of VirginiaDo you expect consumer debt levels to rise, fall or stay the same in 2015?

That is a million dollar question. I think there are two arguments that could be made here. One is that the size of the recession that we recently went through here from 2008 until very recently was a real wakeup call to consumers and will forever leave an impression as far as past spending ways go, a little bit like people from the Great Depression era were oftentimes fundamentally altered for the long term in terms of how they viewed things like debt and overspending. So that’s one argument.

The other argument is that consumers are going to have this pent-up energy and are likely to go back into an overdrive mode just as soon as they’re able to. And, as better times come and they’re feeling more bullish about the future, will they forget the pain of overspending and will they immediately revert back to it?

I don’t have an immediate prediction about that. My hope is that you will see consumers exhibit a little bit more sensibility in terms of their spending, which I think is good for the economy long term because I think it’s more sustainable. Although Americans have paid down their credit cards over the last 5 to 7 years, Americans still carry a very high level of consumer debt. It would be a pretty gross overstatement to suggest that somehow the zebra’s changed its stripes. We’ll see what happens. I’ll be as curious as anyone else to see what happens with that.
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John W. Goodell

Associate Professor of Finance, University of AkronDo you expect credit card interest rates to rise in 2015? If so, by how much?

I would expect rates to remain fairly constant over 2015 and not rise that much. The spending and debt patterns of U.S. households are not such to push up rates. We all know that Treasury rates will eventually rise. But next year is likely too soon. There is still low consumer demand. The fiscal situation of the U.S. has improved dramatically over the past few years. I think the U.S. will still be able to auction its debt at historically low rates and I don't see the Fed aggressively raising rates.

Do you believe credit will become more or less available in 2015, and why?

A bit more available as credit is more demanded and as economy recovers more consumers will be able to maintain debt.

Do you expect consumer debt levels to rise, fall or stay the same in 2015?

I think debt levels will slightly rise. This will be due to credit somewhat easing during 2015 as the economy is clearly recovering. Additionally, households have been scaling back debt to have a slight positive savings ratio over the past few years. As savings ratios have stabilized there will likely be a slight mean reversion in the debt of households.

What do you expect from mortgage rates and mortgage availability in 2015?

I do not see much change in mortgage rates and mortgage availability for 2015. As I answered in previous question, I do not see substantial rate increases in 2015. The scaling back of mortgage availability has already taken place in past few years.
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Hal Heaton

Denny Brown Professor of Finance, Brigham Young UniversityRight now the world has a number of unknowns that may dramatically change my responses. I am assuming none of the following happen: (1) China’s growth rate continues to drop and it becomes necessary for them to sell off their huge stash of U.S. Treasuries to support their economy, (2) The European Central Bank (ECB) has announced a stimulative money policy to prevent Europe from going into recession/deflation and it doesn’t get worse, (3) Japan’s highly stimulative economic policies (“Abenomics”) doesn’t lead to meltdown.

Do you expect credit card interest rates to rise in 2015? If so, by how much?

Most credit cards are tied to a short term rate (e.g. prime, LIBOR, etc.) plus a spread. Yes, I expect short term rates to rise during 2015, and hence credit card interest rates to rise. The forward rates on short term rates are looking at about a 1% (100 basis point) rise during 2015.

Do you believe credit will become more or less available in 2015, and why?

I expect it to become more available since bank capital positions are improving and once they have fully met the Basel standards, they will be anxious to loan it out at much higher rates than they can get on Treasuries and deposits at the Federal Reserve.

Do you expect consumer debt levels to rise, fall or stay the same in 2015?

It will do what it almost always does, rise. As economies grow, consumer debt grows.

What do you expect from mortgage rates and mortgage availability in 2015?

I expect them to move with most interest rates; they will rise. Since housing starts are still well below their peak, I expect availability will be good. The big question is how fast the Federal Reserve reduces their huge position in long term Treasuries. If they gently let the Treasuries pay down, long term rates (and hence mortgage rates) will rise gently (i.e. 0.5% to 1%). If however, they actually start to sell off their hoard of Treasury bonds, then rates could rise much more quickly.
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Robert S. Chirinko

Professor of Finance, University of Illinois at ChicagoDo you expect credit card interest rates to rise in 2015? If so, by how much?

Very little: the FED will keep its benchmark rates low for the foreseeable future and other factors that determine credit card rates will remain largely constant.

Do you believe credit will become more or less available in 2015, and why?

More but slowly, as banks become more confident in the recovery.

What do you expect from mortgage rates and mortgage availability in 2015?

A slight rise in rates, as the effects of QE dissipate and the housing recovery proceeds slowly.
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Ryan M. Brewer

Assistant Professor of Finance, Indiana University-Purdue University Columbus Do you expect credit card interest rates to rise in 2015? If so, by how much?

Consumer confidence continues to grind up and down, yet without significant movement upward. Corporate investment levels are peaked as evidenced by continued record levels of cash on-hand. Global economic conditions show inconsistency. Therefore, in the spirit of attempting to encourage R&D investment, I don’t believe the Federal Reserve will increase the discount rate next year. Meanwhile, banks are still attempting to spur sales of their products (i.e., use of credit cards among other products and services), and thus banks will not likely raise consumer credit card rates as they are attempting to grow accounts and service levels.

Do you believe credit will become more or less available in 2015, and why?

Credit will become more available next year, slightly, as the American unemployment rate continues to drop and as wage pressures increase, slightly.

Do you expect consumer debt levels to rise, fall or stay the same in 2015?

Consumer debt levels will rise slightly as consumer confidence continues its slightly upward trend going forward. Americans will take on a bit more debt as they begin to see wages rise and jobs continue to be comparatively more available versus in recent times.

What do you expect from mortgage rates and mortgage availability in 2015?

Mortgage rates will likely rise a bit as economic conditions improve, particularly with certain equities performing well (e.g., domestic) and others not so well (e.g., international), pressuring upward the 10-year bond rate a bit.
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Tomas Mantecon

Associate Professor of Finance, College of Business, University of North TexasDo you expect credit card interest rates to rise in 2015? If so, by how much?

No significant increases.

Do you believe credit will become more or less available in 2015, and why?

More available. More confidence about the future; less uncertainty about asset values.

Do you expect consumer debt levels to rise, fall or stay the same in 2015?

Stay at similar levels

What do you expect from mortgage rates and mortgage availability in 2015?

Higher mortgages and slightly more availability.
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Anthony Plath

Associate Professor of Finance, Belk College of Business, University of North Carolina at CharlotteDo you expect credit card interest rates to rise in 2015? If so, by how much?

Yes, but the magnitude of the increase depends on when (and if...) the Fed raises interest rates at mid-year like everyone expects them to do. Economic weakness in Europe, China, India, and Japan add a bit of uncertainty to the mix here, since the central bank in each of these other major countries is currently headed toward a major monetary stimulus effort to sustain what's turning out to be a big deceleration in economic growth (and possible deflation) in each economy. That leaves the U.S. as the only major economy planning monetary tightening and higher interest rates in 2015, which means the dollar is likely to soar in 2015 sending exports into the tank for the year, which could imperil our own tepid rate of economic growth and any employment gains planned for next year if the Fed tightens too aggressively during the course of the year.

All things considered, what's the best guess for the magnitude of the Fed's rate increase planned for mid-year 2015? I'd say 100 to 150 basis points on the Fed Funds target range, taking it up to 100 to 150 basis points by the end of the year. Credit card rates will likely move in lockstep with any Fed Funds rate movement, rising next year by 1 to 2 percent, with a midrange estimate of 150 basis point increase over current rate levels.

Do you believe credit will become more or less available in 2015, and why?

Modestly more available, since bank credit quality and capital adequacy levels are much improved over 2012 and 2013, the U.S. economy is growing (albeit slowly...), the unemployment rate is falling, and commercial bank appetites for risk-taking is vastly improved from levels observed in 2009 through 2013. In addition, the ability of banks to continue boosting profits through loan reserve release is just about over, and operating costs in the industry are currently quite low for most banks, so the only way for banks to post profit increases in 2015 and 2016 is through enhanced revenue generation.

That means expanded credit card availability, higher credit card interest rates, and more aggressive risk-taking in approving new credit card applications for marginal borrowers in 2015.

Do you expect consumer debt levels to rise, fall or stay the same in 2015?

Debt levels will rise modestly with the growth in the general economy, outpacing economic growth by a percentage point or two. That would portend a general increase in consumer debt in the 4 to 5 percent range for the coming year. Consumer debt would expand much more rapidly when (and if...) we begin to see substantive household income growth, which to date has been largely absent from the economic recovery that dates to 2009. We're finally seeing reasonable employment growth in 2014, but there's still no genuine income growth present in the recovering job market. As long as consumers face reduced purchasing power based on constant household income levels in the face of rising consumer prices (especially for food and healthcare), they'll be reluctant to take on significant amounts of new debt.

What do you expect from mortgage rates and mortgage availability in 2015?

Availability will be significantly greater, especially for higher-risk applicants lacking a substantive down payment, based on recent policy announcements from Mel Watt at the FHFA with respect to expanded mortgage finance availability and a general dilution of the original QRM standards. Like credit card rates, mortgage rate increases will rise in lockstep with Fed rate increases during the year for well-qualified borrowers. For higher-risk and more financially fragile borrowers (those with lower FICO scores and smaller down payments), mortgage increases will run higher than the 150 basis point expected uptick in the general level of interest rates, as mortgage lenders add an enhanced risk premium to the cost of mortgage credit to reflect the lower credit quality of these applicants.

Editorial Disclaimer: Editorial content is not provided or commissioned by financial institutions. Opinions expressed here are the author’s alone and have not been approved or otherwise endorsed by any financial institution, including those that are CardHub advertising partners. Our content is intended for general educational purposes and should not be relied upon as the sole basis for managing your finances. Furthermore, the materials on this website do not constitute legal advice and should not be relied upon as such. Please let us know if you have any questions or suggestions.

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