JACKSONVILLE, FL – One might intuitively expect a direct and immediate correlation, and this is largely what we found. We analyzed data from the Federal Reserve of St. Louis to examine the relationship between credit card delinquencies and the apartment price index in the U.S. The Year-over-Year (YoY) change between these two variables reveals a notable negative correlation. Specifically, when credit card delinquencies rise, apartment prices tend to fall, and vice versa.

Initial Findings and Analysis

Our primary objective is to identify leading indicators for the apartment price index. To determine if credit card delinquencies could serve this purpose, we applied a time lag to our analysis. The initial findings showed that credit card delinquencies do not provide much lead time for predicting apartment prices. The strongest correlation appeared between time zero and a one-quarter lag, with values of -0.7538 and -0.7597, respectively. This suggests that while there is a strong negative correlation, it does not significantly precede changes in apartment prices.

In essence, this implies that apartment prices will not rebound until credit card delinquencies stop rising. The moderately positive correlation observed around a ten-quarter lag likely reflects broader credit cycles and includes a lot of noise, rather than indicating a direct causal relationship. It is reasonable to assume that apartment prices might rebound a couple of years after credit card delinquencies peak, but this is more reflective of economic recovery cycles than a direct predictive relationship.

Visualizing the Data

To illustrate the slight strengthening of the negative correlation with a one-quarter lag, we included a time series chart. This chart shows that the negative correlation is marginally more pronounced with a one-quarter lag, making credit card delinquencies a coincident indicator rather than a leading indicator for apartment prices. Despite this, delinquencies remain an important metric to monitor.

Conclusion

Our analysis reveals a strong negative correlation between credit card delinquencies and the Apartment Price Index, particularly at a one-quarter lag. This finding suggests that changes in credit card delinquencies and apartment prices occur almost simultaneously, with delinquencies slightly leading the way. While the correlation shifts to a mild positive at longer lags, this is more indicative of broader economic cycles than a direct relationship.

The key takeaway is that while credit card delinquencies don’t provide a significant lead time as a predictive indicator for apartment prices, they are a crucial coincident indicator. Their close tracking with real estate trends underscores their importance in real estate market analysis. A rise in delinquencies likely signals that apartment prices in the broader market have yet to stabilize.

For a more detailed analysis and to explore the comprehensive data and methodology behind these findings, read the full article here.

About Nuvo Capital Partners

Nuvo Capital Partners is a niche market-focused multifamily private equity firm operating throughout the Southeastern United States. As a dedicated sponsor (General Partner), we specialize in institutional quality real estate investments within these regions. Our team, with a combined 25+ years of experience, has facilitated over $700M in transactions (10,000+ units). Delivering a transparent investment process, we provide our investors with access to high-quality real estate opportunities, while also ensuring integrity throughout. Our commitment extends to providing monthly, quarterly, and yearly in-depth reporting for our valued investors. To learn more, visit nuvocapitalpartners.com.

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