Study forecasts drop in equity lines of credit

September 30, 1990|By Phil Roosevelt | Phil Roosevelt,American Banker

NEW YORK -- Home-equity lines of credit, whose popularity soared in recent years, are entering an era of sharply reduced growth because of weak economic conditions in many regions, a new study found.

Home-equity lines outstanding at banks, thrifts and other institutions will grow by an average of 11.1 percent a year from this year through 1992, down from a 26.9 percent average for the previous three years, the study said.

The report by Regional Financial Associates in West Chester, Pa., predicted growth will be weakest in New England and strongest in the Pacific Northwest.

Overall, the study said, the market will be hurt by weak housing prices, softening labor markets and slower consumer spending.

"Lenders are going to have to be a little more savvy," said Mark M. Zandi, a managing director at the consulting firm. "Before, borrowers would just knock on the door. Now, lenders are going to have to give borrowers a reason to borrow."

Home-equity lines have been an important part of the commercial banking industry's broad push into consumer lending. In fact, such credits have been among the fastest-growing assets on bank balance sheets in the past two years.

Lending executives and other observers do agree that the market will slow. But they differ on the extent.

"I would not be surprised to see the rapid growth of the past few years slow down," said James E. Maynor, president of First Union Home Equity Corp. in Charlotte, N.C. "But I don't think it's going to get as slow as 11 percent."

He and others noted that the recent weakening of housing prices provides fresh incentives for some people to borrow. Rather than sell their homes into weak markets and buy new ones, these people borrow to expand or improve their homes.

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