US credit card and personal-loan delinquencies are likely to rise in 2023 to the highest in a dozen years, with lenders cutting back on originations as a potential recession looms.

Serious card delinquencies are expected to climb to 2.6% at the end of next year from 2.1% at the close of 2022, according to a forecast released Wednesday by credit-reporting firm TransUnion. Delinquency rates for unsecured personal loans are also expected to gain, to 4.3% from 4.1%.

“The liquidity people had is going away,” Michele Raneri, vice president of US research and consulting at the Chicago-based company, said in an interview. “Inflation is a huge contributor.”

Credit-card originations are expected to slump 7.6% next year while still remaining higher than last year’s total. The projected dropoff would follow two years of aggressive loan growth, especially for credit cards and personal loans, and serious-delinquency rates close to pre-pandemic levels, TransUnion said.

As Covid-19 pandemic restrictions lifted, consumers returned to spending, including tapping their credit cards. But even as delinquency rates increase, consumers overall aren’t overextended, Raneri said.

Outside of credit cards and personal loans, another area of lending is seeing a dropoff in originations: mortgages. The Federal Reserve has been boosting interest rates in an attempt to damp inflation, increases that have made their way into home-loan costs. The average rate for a 30-year, fixed loan surged past 7% this year — the first time it’s broken that level in two decades.

Originations of loans for home purchases and to refinance existing mortgages have dropped off as a result, and are expected to continue sliding next year. TransUnion predicts 2023 purchase originations of just above 4 million, about half their level last year. Refinance originations are forecast at just over 1 million, which would be a low in data reaching back 18 years.

There are other opportunities for Americans seeking financing — and for lenders in search of customers. Home-equity originations are expected to soar 24% next year, with homeowners looking to tap the sizable equity they’ve built up in their properties.

Reallocating Workers

“The upside is this home-equity market,” said Joe Mellman, a TransUnion senior vice president, and mortgage business leader. “This is an area where we’re already seeing some home lenders reallocate their workers — from their mortgage divisions to their home-equity divisions.”

Another area of opportunity for lenders is in auto-loan originations, TransUnion said, with an expected growth of 6% across all borrower risk tiers in the fourth quarter of next year. Delinquencies, on the other hand, are predicted to peak this quarter.

“We expect delinquencies to just kind of settle in and moderate into next year,” said Satyan Merchant, a TransUnion senior vice president, and auto business leader. “This tempered kind of growth of originations into next year is what we expect.”