"Only dull people are brilliant at breakfast" -Oscar Wilde |
"The liberal soul shall be made fat, and he that watereth, shall be watered also himself." -- Proverbs 11:25 |
“Everybody was basically using their house as an A.T.M. machine,” said Dave Simonsen, a senior vice president for NAI Alliance, an industrial real estate firm in Reno. “Now they are upside down on their house without that piggy bank to go back to.”
From 2004 through 2006, Americans pulled about $840 billion a year out of residential real estate, via sales, home equity lines of credit and refinanced mortgages, according to data presented in an updated working paper by James Kennedy, an economist, and Alan Greenspan, the former Federal Reserve chairman. These so-called home equity withdrawals financed as much as $310 billion a year in personal consumption from 2004 to 2006, according to the data.
But in the first half of this year, equity withdrawals were down 15 percent nationally compared with the average for the last three years, and consumption supported by such funds plunged nearly one-fourth, according to the Kennedy and Greenspan data.
This summer, the size of withdrawals fell even more sharply to about one-third below the level of late last year, according to Mark Zandi, chief economist at Moody’s Economy.com.
“This slide in equity withdrawal is very recent,” Mr. Zandi said, “so you wouldn’t expect the drop in spending to occur until now, or Christmas.”
Only a year ago, money taken out of houses was still more than 9 percent of the nation’s disposable income, Mr. Zandi calculated, using a sampling of Equifax credit reports to supplement Fed data. By this fall, it had dropped to about 5 percent, a difference of about $350 billion a year.
Much of the attention in the recent collapse of the housing boom has focused on those in danger of losing their home or facing higher monthly payments in their adjustable mortgages. But the broader effect on the economy is likely to come from the much larger group of homeowners who can no longer count on rising home values to bolster their wealth.
Labels: economics, housing bubble, I love the smell of schadenfreude in the morning, unabashed consumerism