by Elizabeth MacDonald
The New York Federal Reserve recently put out a report on consumer credit that shows how underwater taxpayers still are even three years into the bursting of the credit bubble.
And in light of the negative news on existing home sales, the report’s new findings on home equity lines of credit should be of deep concern to policymakers in Washington, DC.
With HELOC lines of credit still stubbornly high, how can underwater homeowners ever sell?
The report shows that total consumer debt was $11.7 trillion as of June 30, the latest data available. That’s 6.5% lower from the third quarter of 2008, when the bubble started to blow up.
Two graphs in this report may really pop out at you. “That’s because they highlight how people used their home equity lines as credit cards,” says Fox News analyst James Farrell. They “cannot find buyers to liquidate their primary asset to pay off (these home equity line balances), as well as the existing mortgage except at prices which represent a fraction of what they paid at the top of the market.”
(see pages 4 and 8)
Farrell adds: “Investors recognize this,” which is why they “continue to represent a significant share of existing home purchases.”
The New York Fed’s report shows home equity lines of credit (HELOC) fell just 4.4% to $700 billion in the first quarter of 2010 from their January 2009 peak. Meanwhile, consumers had $800 billion in credit card balances outstanding, down just 6% from their peak in 2008.
HELOCs are revolving lines of credit where borrowers can choose when and how often to borrow up to their lines’ credit limit, which is taken out against the equity of their home.
Couple the outstanding HELOC balances with the home sales report just released:
* Existing home sales dropped 27.2% to a seasonally adjusted annual rate of 3.83 million units in July 2010 from a downwardly revised 5.26 million in June 2010, and are 25.5% below the 5.14 million-unit level in July 2009;
* Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995;
* There is a 12.5 month housing inventory at the current sales rate;
* Speculators ("investors") accounted for 19% of buyers in July (up from 13% in June);
* 32% of the home sales were from distressed sellers;
* In the West (home of the 2007 housing binge), the July 2010 median sale price of an existing home was $224,800 – a mere 33% decline from $335,000 in 2007.
Lawrence Yun, chief economist of the National Association of Realtors, admitted that "there is not likely to be any measurable change in home prices going forward."
The Federal Reserve report notes that "[t]otal consumer indebtedness is highest in California and Nevada, where average per capita debt balances are $78,000 and $73,000, respectively, compared with $49,000 nationally."
Fox News Farrell says: “It is a tremendous comfort to know that their housing prices have fallen like a rock while they lived like kings on their HELOCs and credit cards.”
Read more: http://emac.blogs.foxbusiness.com/2010/08/24/whats-really-dragging-down-home-sales#ixzz0xYqy3Tnk
