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.
Housing prices are still falling. Also, credit conditions are tightening. So the amount of money people will have to spend from home equity loans and home sales will drop even further.
US Federal Reserve Chairman Ben Bernanke says the credit crunch and housing price downturn are going to slow the economy.
On a day when stock prices swung wildly, the dollar hit another new low against the euro and further signs emerged that consumers are growing more cautious about spending, Mr. Bernanke warned that the economy is about to “slow noticeably” as the housing market continues to spiral downward and financial institutions tighten up on lending.
The party's over.
America is coming off a real estate bender, a cheap oil bender, and a cheap imported goods bender. We are experiencing withdrawal symptoms from three different forms of substance abuse. How you feeling?
|Share |||By Randall Parker at 2007 November 08 10:20 PM Economics Housing|