Consumer debt is a closely watched figure by the Federal Reserve. When a consumer takes on more debt, it’s a sign the consumer is confident about the ability to handle the newly acquired loan. A new car is financed or even a loan to take a nice ski real estate investingvacation this winter.

Consumer debt can also be a warning of things to come, when households begin to accumulate too much debt that it may be hard to repay. And it appears that consumers are gradually borrowing less and paying down their current debt at the same time.

A story by the Housing Wire (1), an online magazine dedicated to the housing industry, highlighted numbers released by Equifax, one of the three main credit repositories. According to the numbers, consumer debt is down 15 percent from its peak. First mortgages, those used to finance a home purchase or refinance, saw balances decline by 1.2 percent. At the same time, home equity loan balances fell even further, with a 7.4 percent decline.

What can this tell us? It might tell us two things, one that consumers are paying down their mortgages at a faster clip but also that the mortgage market is slowing down, and that’s to be expected. Interest rates peaked last summer from its earlier lows and those who refinanced already did so. Mortgage lenders across the country are laying off employees and anticipating a rather significant decline in loan application for 2014, this according to the Mortgage Bankers Association, which projects that new originations will fall 32 percent in 2014, compared to 2013.

All in all, consumers are expected to wean themselves from borrowing, which will free up available cash. If consumers decide to invest that extra cash instead of sitting on it, 2014 just might get the kick start it needs. If that does happen, real estate values should continue to rise while at the same time increase borrowing costs and mortgage rates gradually creep toward 5.00 percent.

  1. Housing Wire