Credit Card Debt Rises as Housing Weakens

The Federal Reserve reported that consumer credit, that is, non-mortgage loans to individuals, rose some 6.4% at an annual pace, or $12.9 billion dollars on May, fueled in large degree by the housing slump as well as concerns over high energy prices. This is not a huge surprise, as when sources of available cash like home equity loans and refi-cashouts are less available, it stands to reason that consumer credit would take on some of the debt load. This may be the first year since the Depression that home prices will not post an annual gain, and it may be making some consumers less apt to spend, both because they are no longer experiencing large paper gains in their equity on their homes, as well as the fact that their personal debt loads are increasing, making it harder to stomach.

This leads to the thinking that consumer spending will slow to a rate of 2.2% in the second quarter.  Most believe that the continued housing woes and energy prices will keep consumers wary of pulling out the plastic, or the loan apps, in spite of stronger than expected job gains and wage numbers. This actually may bode very well for the housing market, which is lately showing signs of life, to make a rebound in 2008. Mortgage applications are just now on the rise, and rates have held steady. It is a more than a little disconcerting, however, that Americans will continue to incur debt at this rate, no matter what instrument they find to incur it.