Home-equity loans, which helped fuel Americans' pre-recession spending binges, are climbing out of a prolonged slump as house prices rise. But don't expect them to drive consumer purchases as they did in the boom years.
"Housing isn't providing the same juice to consumer spending," says
Outstanding balances on home-equity lines of credit fell for the 10th straight quarter in the January-March period to
The balances dropped because homeowners continue to shed more debt on home-equity loans taken out in the housing run-up -- through repayments and defaults -- than the amount of new loans being generated.
But a closer look shows that the sector is recovering. Lines of credit originated by lenders rose 20% last year to
"It has recovered significantly from where it was just a few years ago," says
Fueling the increase are average home prices that in February were up 23% from their
But banks remain cautious. Consumers can borrow 80% to 85% of a home's value, vs. as much as 125% in the mid-2000s, McBride says. With home prices still 20% off their 2006 peak, many homeowners don't have enough equity to meet banks' credit standards.
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