Don’t worry, the credit markets are still fine (mostly)

The business press obsesses over the stock market, but the credit market is the key to everything. Inflation may be rising (it is), consumer sentiment may be in the dumps (it is), the jobs market can be dropping (it isn’t, actually), but as long as there is demand for credit, as long as banks are making loans and borrowers are servicing their debt, everything will be okay.

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I think. This is my new theory, at least. I just started reading Liaquat Ahamed’s “1873,” (pub date is June 2 if you’re interested) and he illustrates the point. Stock markets on both sides of the Atlantic were falling during that year, but it wasn’t until the bond market seized up that the problems metastasized into a crisis. That’s kind of what happened in 2008, which I was talking about 2008. The economy was contracting, gas prices were prohibitively high, but it wasn’t until the credit markets froze that the recession became the worst crisis in 80 years.

I do think there is plenty to worry about these days – the private-credit market, the AI bubble, the price of oil – but maybe, kind of, hopefully, it’ll all be okay so long as the debt markets keep working. As it so happens, we got two updates on the debt market this week. The TLDR is there’s some friction there, but the engine is still running.

Thousands of homeowners are behind on their mortgages and heading into foreclosure, our Kate Berry writes, after the Trump administration’s decision to kill FHA-backed pandemic-era relief for borrowers. Foreclosures on FHA-backed loans jumped 28% in the first quarter, according to Attom Data. This has led, naturally, to a significant deterioration in loans and will lead to a spike in delinquencies over the next 18 months or so.

Elsewhere, the New York Fed released its quarterly Household Debt and Credit Report (will add some color from Kevin’s piece when I see it). The overall debt load for consumers rose slightly in the quarter, by only $18 billion, to a total of $18.8 trillion. The report said the delinquency rate was little changed. “Transitions into early delinquency,” – i.e., you’ve just stopped paying your bills – were steady for auto loans and actually a bit lower for credit cards and mortgages. 

Those two data sets seem to be at odds. The difference is that the FHA backed about 875,000 loans in 2025, compared to 4.7 million homes that were sold overall for the whole year. So the Attom Data numbers are covering a small subset of the overall market, and then a smaller subset is delinquent. You might be inclined to try and ignore that, then, but there’s also this: 2025 was the worst for home sales in 14 years, and this year brought a weak spring selling season for homes. That says something about the demand for credit, but nothing good.

One thing the New York Fed explored, which our Kevin Wack wrote about yesterday afternoon, is the surge in student-loan delinquencies in the first quarter in the wake of the end of pandemic-era forbearance. The rate on delinquencies of more than 90 days rose to 10.3%, up from 9.6% in the fourth quarter and just 0.5% in the fourth quarter of 2024, when government policies were holding them down.

The Fed’s researchers said they didn’t see this bleeding into other credit markets, but they did note that debtors falling into delinquencies on their student loans were likely delinquent on other loans as well. That’s an indication that people who are struggling these days are really struggling.

and while these are two important markets, but they aren’t the whole credit market. For the overall market things look fine. The total delinquency rate in the fourth quarter was only 1.48%, according to the Federal Reserve, which is roughly where it’s been the past few years. I wouldn’t worry unless it climbed over 2% or 3%, like it did in 2007 and 2008, on its way to a peak above 7% in 2010. 

But things like the FHA numbers and student loans are cracks. And cracks can sometimes turn into breaks. Whether these cracks turns into a break will depend on a lot of things, but I bet if there is a break it will show up first in the credit market.