Consumers Turn to Credit Cards in Wake of Unavailable Home Equity Lines
WASHINGTON – Consumers kept charging at a rapid pace on their credit cards in July although their overall borrowing slowed a bit. The Federal Reserve reported that consumer credit rose at an annual rate of 3.7 percent in July, down from a 5.9 percent growth rate for consumer debt in June.
The slowdown reflected a big drop in borrowing in the category that includes auto loans. The category that includes credit cards saw an increase as consumers continued to turn to their credit cards to finance purchases now that home equity lines of credit are becoming harder to obtain.
During the housing boom, when sales of both new and existing homes set records for five consecutive years and prices were rising sharply, many homeowners tapped the rising value of their homes to finance their spending by taking out home equity lines of credit. However, now with home sales plunging and home prices stagnant, home equity lines of credit have become less available. That has pushed consumers back to relying more on their credit cards to finance purchases.
Total consumer credit rose by $7.5 billion July, below the $9.5 billion increase economists had been expecting and was below the actual increase of $11.9 billion in June. The July gain still pushed consumer debt to a record high of $2.456 trillion. The Federal Reserve does not included loans secured by real estate, such as mortgages, in its measurement of consumer debt.
Revolving credit, the category that includes credit cards, rose at an annual rate of 6.6 percent in July, the third consecutive big monthly gain. Revolving credit had been up at a rate of 6.4 percent in June and 10.9 percent in May. Non-revolving credit, the category that includes auto loans, rose at a modest rate of 1.9 percent in July after having risen at a 5.6 percent rate in June and a 5.5 percent rate in May. The July gain was the weakest showing in nine months, since non-revolving credit had actually fallen by 2.1 percent last October.