Economist's Commentary: April 7, 2008

Quick Take on the Economy: April 7, 2008

By Lawrence Yun, Chief Economist

NAR Chief Economist Lawrence Yun

Consumer credit in February increased by a 2.4 percent annualized rate. It is a weaker than the 4.9 percent expansion in January and well below the typical 5 percent annual increases in the past five years.
Consumer credit, as measured by the Federal Reserve does not include mortgage debt borrowing.
The sub-category shows revolving credit rose at a solid pace of 6 percent. But nonrevolving credit, which primarily covers automobile loans, stagnated with no increase. This stagnation is consistent with recent weak vehicle sales. The rise in revolving credit implies greater credit card usage. That happens when people feel optimistic about future income or because the credit card is the choice of last resort for many families. The latter is no doubt the dominant factor.
Credit impacts potential spending. Weak overall credit growth implies weak spending growth.
The average interest rate on credit cards was 13.7 percent. It is a decline from 14 to 15 percent rate of 2007, but still is very high! Compare mortgage rates averaged under 6 percent and mortgage interest is tax deductible while credit card interest is not.

With housing values falling or growing slowly in many parts of the country, consumers are feeling less wealthy. As a result, consumer spending is weakening. This weakening in consumption will further hold back economic growth.
Get out of credit card debt. If you are a homeowner, then take out a home equity loan and pay off the credit card debt

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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