HELOCs no longer fueling auto sales

In 2007, 11% of new car sales nationwide were financed by using a Home Equity Line of Credit. In California, it was nearly 30%. Yikes.

With the sharp dive in home prices, using HELOC money is no longer an option for most. Repos on cars are soaring. New car sales are sharply down.

I think the concept of “pulling out equity” gave people a sense that they were actually taking a bit of the profit on their imagined home price increase, instead of just taking out a loan against it.

Now, credit card delinquencies are rising. With HELOC money often no longer an option (either the house is worth less than they owe or the bank has revoked the HELOC), homeowners now are using credit cards or payday loans to pay the bills. But the interest rates on those are extremely high, and once that money gets burned through, there is nothing else, no other way to borrow.

Most get into financial trouble because of a job loss or medical bills, not so much because of living beyond their means. Yet once you fall in a financial hole, getting out is hard indeed, especially in these unforgiving times.

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