Ready, Fire, Aim! - Mihail's Public Blog: Consumer debt falls to $1.722 trillion due to refinancing spree

Thursday, January 9, 2003

Consumer debt falls to $1.722 trillion due to refinancing spree

According to this Wall Street Journal story (subscription required) on the surprising twist in consumer debt which had been expected to rise:

Outstanding balances on car loans, credit-card loans and other forms of consumer installment debt fell a seasonally adjusted $2.2 billion in November from the previous month to $1.722 trillion, the first drop since January 1998, the Federal Reserve said in a monthly release on consumer credit. The decline was the largest drop since 1991, when the economy was slowly emerging from recession and households were aggressively replenishing their own financial resources. Analysts had expected consumer debt to rise by $4.0 billion in November.

...However some economists said there is an important alternative explanation for the drop in debt balances: the late-year surge in home mortgage refinancing. According to a separate Federal Reserve study, many households have been using cash proceeds from home mortgage refinancing and from home equity loans to pay off other forms of consumer debt. This Fed study, released in its December 2002 bulletin, said about $28 billion in home equity loans and refinancing proceeds were used to pay down other forms of debt between 2001 and mid-2002. The study didn't cover the latter part of 2002, but refinancing activity surged during that period as interest rates dropped to their lowest levels in more than 30 years.

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