U.S. consumers are increasingly using their credit cards rather than tapping home-equity credit lines to pay debts or finance a big purchase, according to Sanford C. Bernstein & Co.
U.S. credit-card loan balances will probably rise to $923 billion this year, outpacing home-equity borrowing by the most since at least 1990, according to data from New York-based Bernstein. U.S. issuers with a heavy concentration in card loans, including American Express Co., Capital One Financial Corp. and Discover Financial Services, are poised to benefit, the firm said.
U.S. banks are competing for short-term consumer loans with new players including peer-to-peer lenders that can offer better terms and more efficient methods. Record-low interest rates also have squeezed margins on home loans, with Discover announcing this week that it was closing its mortgage-origination unit because it had become a drag on earnings.
“A reversal is well underway as banks have tightened terms and standards, and home values in many areas have yet to fully recover,” Kevin St. Pierre, a Bernstein analyst, said in the research note. “Revolving credit should continue to outpace home-equity growth for the foreseeable future.”
After two decades of home loans “cannibalizing” cards, that trend started to reverse in 2012, Bernstein said. Loans from credit cards are accelerating and will probably increase by 6 percent over the next five years, the firm said, based on its own estimates and Federal Reserve data.
The average fixed rate on a credit card is 13.02 percent, nearly three times that of a $30,000 home-equity loan for borrowers with average credit scores, according to the most recent data from Bankrate.com.