With a recession on the horizon, the landscape for financial institutions will become more difficult for the rest of 2022 and into 2023. Rising delinquencies, tighter margins driven by an inverted yield curve, and softening loan demand due to higher rates will pose a series of challenges.
More restrictive monetary policy is having the desired effect of slowing lending activity. Mortgage loan applications fell to 22-year lows in July with refinancing activity dropping more than 81% from a year earlier with 30-year mortgage rates over 2% higher than a year ago.
Similarly, auto lending has also begun to slow down. While still positive, growth in auto lending has cooled from earlier this year, as the chart below illustrates. While continued supply chain disruptions have contributed to this, higher rates are having a clear impact.
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