Home equity loans on the rise, but not adding 'juice' to consumer spending

by MPA02 Jun 2014
A rise in home equity loans doesn't mean a return to irresponsible spending, an economist has said.

Home equity lines of credit originated by lenders rose 20% last year to $92.5 billion, USA Today has reported. The growth in home equity loans is the fastest since volumes began to rise in 2011.

“It has recovered significantly from where it was just a few years ago,” Bankrate.com chief financial analyst Greg McBride told USA Today.

McBride said rising house prices are fuelling lenders' willingness to allow consumers to borrow against their home. But McBride said lenders remain cautious, with home equity loans topping out at 80-85% LTV versus the 125% LTV of the mid-2000s.

Moody's Analytics chief economist Mark Zandi agreed, telling USA Today that housing no longer provided the "same juice to consumer spending".

Outstanding balances on home equity lines of credit are also down, falling for the 10th consecutive quarter in the January to March period.



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