Amir Sufi co-author of he best economics book of 2014 suggests that fears over the subprime auto market are mis-place
The growth in subprime auto loan market has been the focus of a lot of attention since last summer, it is frequently compared with the subprime housing market prior to its collapse. Professor Amir Sufi from the University of Chicago suggests that these fears are mis-placed, largely as subprime auto loan debt outstanding is a small fraction of household debt relative to mortgages. Sufi is co-author of &ldquo;House of Debt&rdquo;, which is referred to as the best economics book of 2014.
WASHINGTON (MarketWatch) — The growth in subprime auto loans has drawn a lot of comparison recently to the conditions of the subprime housing market prior to its collapse.

But those fears are misplaced, in large part because subprime auto loan debt outstanding is such a smaller fraction of household debt relative to mortgages, said University of Chicago economics professor Amir Sufi.

Sufi is co-author of the book “House of Debt” called the best economics book of 2014 by former Treasury Secretary Larry Summers. In it, Sufi and his co-author Atif Mian of Princeton, argued that the financial crisis was caused by overly indebted households.

“The first thing you notice about the subprime auto loan market is that it is way smaller than mortgages. People have been talking about it as if it was like the subprime mortgage crisis, but I mean, these are total different magnitudes,” Sufi said.

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Subprime mortgage origination peaked above $600 billion in 2005, according to Inside Mortgage Finance. That’s well above the $129.6 billion of subprime auto loans originated in 2013, according to Equifax data.

Mortgage debt remains 69% of the total household debt outstanding, whereas auto is 8%, according to fourth quarter data from the New York Fed.

Sufi does see risks that a drying in subprime auto lending could in turn weigh on auto sales, which has been a rare bright spot for consumer spending. But he doesn’t see how subprime auto lending could spur a financial crisis.

“If you just look at the total amount of debt in that market, and how levered those households are becoming because of subprime auto loans, it is not at a level that looks really concerning,” he says.