No More Home Equity? Bust Out The Credit Card, Consumer Borrowing Is Up

With home equity harder to find these days, one might suspect that there would be a drop in consumer borrowing. Nope.

The Associated Press says that consumer borrowing has increased as home owners see the pools of easy credit dry up.

The Federal Reserve reported that consumer credit rose at an annual rate of 5.9 percent in August, the biggest increase since a 7.9 percent jump in May.

The increase was led by an 8.1 percent leap in revolving credit, the category that includes credit card loans. Consumers have been using their credit cards more to finance purchases now that home equity lines of credit are becoming harder to obtain.

Non-revolving credit, which includes auto loans, also rose at a faster pace in August, increasing at an annual rate of 4.7 percent, compared with gains of 3.1 percent in July and 4 percent in June.

In total, consumer credit rose by $12.2 billion to a record $2.469 trillion. The increase was bigger than the $9.5 billion gain analysts had been expecting.

Ryan Sweet, an economist at Moody’s Economy.com, said that the healthy increase provided “further evidence that consumers did not pack it in” after the financial market turbulence hit in August.

When home prices were soaring many consumers tapped the “value” in their homes for easy cash. Now they’re running back to credit cards, but (so far) not borrowing less.

Consumer Borrowing Up Sharply [AP]
(Photo:viajante)

Comments

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  1. Xerloq says:

    How is this a good thing?

  2. next stop: payday sharks and car title loans. BUY BUY BUY!

  3. synergy says:

    What the F are all these people buying?!

    This is what happens when people learn their money management skills from Barbie playsets.

  4. MENDOZA!!!!! says:

    This kid needs a new washer and dryer, and a new fridge.
    If I buy it with (insert major hardware chain here) card, I get 20% off.
    I have the cash, but want the discount. Pay off card next day, cut up card, close account. TAH DAH!

  5. anatak says:

    “With home equity harder to find these days, one might suspect that there would be a drop in consumer borrowing.”

    Well hell no. Just because you are losing your home doesn’t mean you should cut your lifestyle.

  6. azntg says:

    @Cassifras: TAH DAH! The kid’s credit score taken a big hit after doing that for a couple of times.

  7. anatak says:

    @Cassifras: Or god forbid you just ask them to do better on the price. You’re talking about $2k of appliances. You don’t think they’ll come down to make the deal?

  8. JiminyChristmas says:

    If one were an optimist you could look at it like this: Way back when home equity loans could be had for under 5%, it was the cheapest loan around. Now that home equity loans are above 7%, after you add in the origination costs associated with those you can do just as well or better if you have a credit card with a competitive rate. All other things being equal, it would make more sense to use the credit card: it’s an unsecured loan. That means your house isn’t the collateral.

    I’m not an optimist though.

  9. Fuzz says:

    I’m predicting doom and gloom come February/March after Christmas when all these people can’t even cover minimum CC payments after overspending on Christmas, and not being able to tap any more equity to cover costs.

  10. csdiego says:

    All this debt had better be going to medical bills not covered by insurance, or to get people through stints of unemployment. If people are taking out this debt to keep up the pool maintenance or the SUV payments, or to give little Jaydnn the hugest Christmas ever, I’m going to have to blow something up.

  11. theblackdog says:

    I sort of contributed to these numbers, but only because I moved to another apartment and since paying a split rent to two places along with all of my other bills wiped my cash out, all of my necessities (cleaning supplies, hangers, some basic personal grooming) went on the credit card (yes, I have only one card!) but all of that spending will be paid off this month.

  12. Fuzz says:

    @csdiego:

    Better start rigging up explosives . . .

  13. George Bush says that without defecit spending the terrorists win. These people are just making sure the terrorists don’t win.