Home equity slowdown could thwart consumers

NEW YORK (CNNMoney.com) -- As homeowners begin to use more caution in borrowing against home equity lines of credit, consumer spending could be lowering, according to a published report Thursday.

The Wall Street Journal cited a report from Equifax Inc. and Moody's Economy.com showing that the amount borrowers owe on their home-equity lines of credit has fallen over the past six months for the first time since 1999.

The paper said that while a decline in borrowing against home equity lines of credit was tempered by a rise in more stable fixed-rate loans, total home equity borrowing rose 9 percent in the 12 months ended in March, compared to a 21 percent annual growth average over the past five years.

The Journal quoted Mark Zandi, chief economist of Economy.com, as saying decreased borrowing is leading to weaker sales in some markets for autos, building materials and electronics. Zandi tells the paper that the consumer spending weakness could be particularly acute in the housing markets that are suffering most, such as Boston, Minneapolis, Miami, Las Vegas and Washington.

"People are feeling uncertain about the value of their home and are feeling tapped out," Doreen Woo Ho, Wells Fargo & Co. (Charts, Fortune 500) consumer credit group president, told the Journal.

Demand for home-equity credit lines grew as borrowers paid off other debts and increased personal spending on bigger-ticket items such as cars, vacations and home improvements. The Journal cited a recent paper by former Federal Reserve Chairman Alan Greenspan and Fed economist James Kennedy as showing that borrowing against home equity lines of credit freed up about $187 billion in cash per year between 2001 and 2005