The mortgage market has long been the focus of investors, with auto loans a common source of income for many Americans.
But that may be changing.
The number of auto loans being backed by investors in the United States rose 10% in the fourth quarter to $3.57 trillion, up from $2.97 trillion in the first quarter, according to data from Credit Suisse Group AG, a bank.
The surge comes as auto companies are struggling to regain customers after a wave of recalls and recalls for other types of vehicles.
The average interest rate on auto loans in the U.S. is less than 1%, compared with the average rate of about 5% on mortgages, according the data compiled by Credit Suise.
The biggest reason for the surge in auto loans is a shift in consumer behavior.
While the average number of car owners per household increased from 10.5 million in the second quarter of 2012 to 10.8 million in 2012, the number of renters increased by more than 4 million to 10 million, according data compiled last month by the Federal Reserve Bank of St. Louis.
A large percentage of auto loan buyers are now renters, with more than 10% of them renting, up nearly 30% from last year.
“Auto lenders are finding it much harder to make loans to those who are in renter status,” said John Bogle, president of the Vanguard Group, which tracks auto loans.
“They’re seeing that the renter population is shrinking and that’s really driving the market.”
The trend has a lot to do with the recession.
Consumers who had been paying less for auto loans have seen their monthly payments fall by about 10% over the past year.
In addition, the share of renters is growing, said Bogle.
Rental demand is also being driven by a surge in luxury car sales and an uptick in the number buying used cars, he said.
Investors have also been buying auto loan receivables to help finance their investments.
For instance, in March, the S&P 500 index climbed nearly 7% on the strength of the auto market.
This week, investors are expected to add about $1 trillion in debt to their portfolios.
That could drive up interest rates for auto loan holders, who are already strapped for cash.
The rise in auto loan lending comes at a time when investors are looking for ways to boost their portfolio.
The yield on the benchmark 10-year Treasury note jumped from 0.2% in December to 1.6% on Wednesday.
That compares with an average yield of 0.3% for bonds, according in Bloomberg data.
For many, the rise in lending comes as a relief, said Ben Van Natta, an analyst at Citi in New York.
“If you are a renter or are a homeowner and you want to invest in the market, then you can put your money into auto loans,” he said in an interview.
For investors, the increased demand for auto borrowing will also add to the value of their portfolio, Van Nathan said.
“The demand for the auto loans has grown substantially over the last two years,” he added.