John Irons's Blog


Economic News, Data and Analysis

Lost Equity

So, this is obviously not good news. Nor is it a surprise that home equity withdrawals are on the decline.
Using the numbers from below, the $350 bill drop in MEWs is about 3.6% of consumption, or 2.5% of GDP.

Homeowners Feel the Pinch of Lost Equity – New York Times

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.
Consumer spending accounts for about 70 percent of all economic activity in the United States, or about $9.8 trillion, so even a slight dip in home borrowing takes huge amounts of money out of the flow. The prospect of a slowdown, combined with the squeeze on households from higher oil costs, is sending shivers through the retail world, as apparel merchants, furniture dealers and electronics stores brace for the possibility that the all-important holiday shopping season will disappoint. Automakers are bemoaning sluggish sales.


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