America’s Driving the Next Subprime Bubble

Wayne Ellis

[house in a shopping cart]

America’s Driving the Next Subprime Bubble (Bloomberg)

Just as home sales and subprime mortgages inflated the real estate bubble in 2006 and 2007, today the U.S. auto industry is watching sales soar on the wings of unqualified buyers. The Fed’s stimulus plan for keeping interest rates artificially low is making it easier for consumers with shoddy credit to buy cars, and for yield-starved investors to purchase bonds with more risk attached to those auto loans.  According to Experian Automotive, these types of higher-risk auto loans now make up 27 percent of new car sales, the highest percentage ever since this statistic started being tracked. Don’t we already know how this story ends?

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Economic growth beat estimates, leading investors to worry that the Federal Reserve could begin tapering its stimulus sooner than expected. This concern dragged the S&P 500 down in its biggest loss in two months.

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