Consumer lending still slow to recover from recession

Housing

Consumer lending, especially for housing, has been slow to recover from the recession. Image from Wikimedia Commons.

Consumer lending — loans lent to individuals — has been slow to recover from a two-year lull. Loans such as mortgages, auto loans, home equity lines of credit and personal loans aren’t impossible to get but are harder to get approved for. Banks are loathe to repeat mistakes that made them run for government cover.

Federal Reserve data indicates borrowing has slowed

Data compiled by the Federal Reserve indicates that debt levels from consumer loans have been falling since the summer of 2008, before the recessionary period began, according to Bloomberg. Total consumer debt, which includes most loans that lenders make to consumers such as personal loans, installment loans and auto loans, but excludes mortgages, stands at $2.4 trillion. That is 6.6 percent below July 2008, the peak period before the recession. Debt from housing loans has declined by more than $530 billion since 2008 with $10 trillion in housing debt still owed by homeowners in the United States. Fed Chairman Ben Bernanke was recently quoted as saying that conditions for credit markets were tight and that he didn’t expect a significant turnaround for some time in the housing market.

Housing market still lagging

The recession began in the housing market, and the return to healthy levels of activity in the housing market has been pursued for some time. Though improvements have been made, there have also been setbacks. From December 2010 to January 2011, home sales increased by a modest 2.7 percent, according to MSNBC, but the share of first time home buyers was only 29 percent of all purchases. Foreclosure properties made up 37 percent of the homes that were sold, and 32 percent of all purchases were made with cash. Given that a high number of foreclosure properties are being sold, a lot of purchases are being made with cash. The Case Shiller Index noted that high-end home sales are rising again, according to CNN, and there is every indication that this is a fantastic market for investors, not for prospective middle-income homeowners.

New models emerging

An increasing amount of regulations, such as the CARD Act and the proposed cap on interchange fees, makes it harder for large financial institutions to be able to turn the kind of profits they are used to. Some consumer credit may not be as easy to come by in coming years. For instance, since the CARD Act was enacted, free checking accounts have been disappearing from major banks, and JPMorgan Chase has been hinting at capping debit card purchases at $50 to $100 if the interchange fee cap is passed.

Sources

Bloomberg

MSNBC

CNN

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