We're seeing more than birds returning this spring.
Consumers are flocking to lenders for mortgages, credit cards and auto loans with a gusto that hasn't been felt in years. According to The Wall Street Journal, household debt increased $241 billion to $11.5 trillion in the last quarter of 2013. That's the largest quarterly increase since just before the recession.
But the best news (from my point of view) is that both consumers and bankers appear to be smarter about their debt. The Journal, which analyzed statistics from the Federal Reserve Bank of New York, reported that most new mortgage loans are being issued to consumers with higher credit scores. Higher credit scores translate into a more conservative and circumspect borrower.
It has taken five years for these borrowers to feel secure enough in their jobs and confident enough in the economy to loosen the purse strings. At the same time, lenders are feeling better about consumers’ ability to fulfill credit obligations. As a result, they're relaxing borrowing standards, thereby allowing more credit-worthy consumers access to the loans they are ready to get. This is quite a turnaround. Not long ago, a good credit score wasn’t enough to secure a loan in many cases.
It seems that lessons were learned from the pre-recession glut of irresponsible, over-optimistic borrowing. Both lenders and borrowers now see the time as right to move forward.
I also like what the Journal's numbers say about the role of government in the economy. Policymakers have tried to encourage lenders to lend and borrowers to borrow. But all this appears to have counted for little in the face of consumers having their faith in economic stability restored through a stable job market and rising home prices. Lenders, for their part, loosened underwriting standards in response to their view of a stable economy and stable consumers.
I find something comforting about a credit market that responds more to the supply and demand of market forces than to artificial government intervention!
What do you think?