The Federal Reserve reports that consumer borrowing increased at an annual rate of 7.4% in November.  That’s much higher than the 1% increase reported in October.

The segment of borrowing that includes debt from credit cards skyrocketed at a yearly rate of 11.3%.  That’s a 6-month high.  The surge apparently means that consumers are relying more heavily on credit cards, now that home equity lines of credit are drying up.

Auto loans also rose in November, increasing at a rate of 5.1%.  Interestingly enough, car loans had decreased 3.5% in October.

Total credit is now up by $15.4 billion—that’s a great deal more than the $8.5 billion that had been predicted by forecasters.

The housing crisis appears to be largely responsible for the increased credit card debt.  Home prices have been falling and standards for home loans have gotten stricter.  As a result, it’s become more difficult to sell a home at a good price.  Therefore, a number of homeowners have been tapping into their credit accounts in order to stay afloat.

Total consumer credit now stands at $2.51 trillion, which represents a record.  The report by the Federal Reserve gauges debt not secured by real estate.  That means that mortgages are not covered in the report.

The housing market is not expected to recover until at least the middle of 2008.  So far, the nation’s housing troubles have not led to a full-blown recession, although that’s still a possibility.  Some observers are urging the Federal Reserve to cut interest rates once again in an attempt to jump-start the housing sector.

Some pessimistic forecasters are predicting that house prices will not recover until 2010.  That’s particularly bad news for those who need to sell their homes this year in order to relocate to new jobs.

At the same time, defaults on car loans appear to be rising, increasing worries for investors. As a result, some investors are wondering whether another major market for fixed income investors, student loans, may be the next sector to fall.

But the troubles affecting the subprime market and the auto loan market may not necessarily translate into problems for the student loan sector. Still, there is the distinct possibility that student loans could become a risky investment in the near term. That’s because student loan default rates have been increasing in the past few months. But while the defaults are cause for concern, they don’t appear to be a trend as of yet.

If, however, there is a noticeable increase in the unemployment rate, student loan defaults could escalate.

One of the advantages to investing in student loans is the fact that they are insured by the U.S. Department of Education. Private student loans are not federally insured, but applicants for those loans need to demonstrate a solid credit history in order to qualify. In addition, such private loans often require a co-signer who is legally responsible if the student should default.

Yet, the subprime loan crisis could have a potential impact on private student loans. If the housing crisis leads to a recession, new college graduates may find it difficult to find a high-paying first job. As a result, they may find it difficult to keep up with their student loan payments. So far, however, the housing situation has not fanned the flames of recession.

The Fed has decreased the federal funds rate, the rate that banks charge each other for overnight loans.

The rate cut marks the third one for the Fed this year.  It follows a nationwide housing crisis—the worst housing slump in some 16 years.  It also comes in the wake of a subprime loan crisis which has caused some financial institutions to leave the subprime business altogether.  Subprime loans are those loans which are extended to individuals with shaky credit histories.  The default rate on subprime loans has been incredibly high, giving rise to the current crisis.

In addition, home prices have fallen dramatically, causing understandable concern for home sellers.  At the same time, would-be homebuyers are having a tougher time obtaining mortgages because of stricter loan standards.

Some analysts are predicting that the Fed will cut interest rates again in 2008—with as many as three rate cuts on the way.  The current rate cut should lead to lower interest rates for credit cards, homeowner loans, and adjustable-rate mortgages.

The Fed’s rate cut also has an indirect effect on long-term rates on such loan products as 30-year mortgages.

Meanwhile, interest rates for savings are also tumbling.  The yield on a 1-year certificate of deposit has dropped to 3.49%.  That’s compared to a rate of 3.8% during the same period 1 year ago.

Economists do not expect the housing market to recover until at least the middle of 2008.  As a result, the housing situation could become a major issue in next year’s Presidential contest.

So far, the housing crisis has not given rise to an all-out recession, although that fear obviously persists.  As a result, the chairman of the Federal Reserve Board has vowed to do everything possible to keep recession at bay.