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, 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]