Are consumers switching from home equity lines to credit cards?
While there’s an ongoing credit crunch for home loans, other debt held by consumers rose last month, reports the Federal Reserve today.
The Fed said total consumer debt in August rose at annual clip of 5.9 percent to $2.47 trillion. Revolving debt, such as credit cards, jumped at the faster pace of 8.1 percent to $915 billion.
I made up a table looking at revolving debt for each August over the past decade and comparing to July and to the previous August. (Note: the vs. a year ago is the month of August compared to the previous August and not an annualized rate of growth, which is why I get 6.7% for August ‘07 vs. a year ago and not 8.1%.)
| Date | Debt (mil.) | Vs. month | Vs. year |
|---|---|---|---|
| Aug-97 | $523,858 | 1.2% | 8.7% |
| Aug-98 | $563,822 | 1.3% | 7.6% |
| Aug-99 | $602,020 | 0.9% | 6.8% |
| Aug-00 | $653,531 | 1.9% | 8.6% |
| Aug-01 | $707,247 | 0.4% | 8.2% |
| Aug-02 | $741,674 | 1.1% | 4.9% |
| Aug-03 | $765,485 | 0.7% | 3.2% |
| Aug-04 | $786,325 | 0.6% | 2.7% |
| Aug-05 | $814,177 | 1.0% | 3.5% |
| Aug-06 | $856,942 | 1.3% | 5.3% |
| Aug-07 | $914,688 | 1.2% | 6.7% |
The way people think is if my house is worth $500K and I owe $800K with my HELOC why should I make the payment. My credit card has a 25K limit and could go up if I make my payments so why use the HELOC? They can live in a motel and still have a huge credit limit on the cards. Also, the HELOC’s are not as available as home values drop more and more.
Lou Pacific
Mortgage and Real Estate Company Consultant
Serving OC for 30 Years.