NYTimes: Home Equity ATM drying up
"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."
And here's a bit more color on the potential impact on spending:
"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."
But is this really such a bad thing? I mean, am I the only person who thinks it's completely imprudent to "liquify" home equity and blow it on frivolous things? Just look at the person the Times selected to illustrate the "terrible" impact of this downturn in home equity on America. Marshall Whittey of Reno, Nevada, we're told, got married at an estate in Napa, honeymooned in Tahiti, bought a 21-foot boat and two flat-screen TVs, then "sold his old truck and bought a new one, he said, 'just ’cause I didn’t like the color.'" Now -- horrors -- he has to cut back because the housing ATM has run dry ... and an investment property he owns is probably underwater.
I don't know Mr. Whittey. And maybe I'm just old-fashioned. But when I see this stuff, I really have to wonder how we as Americans completely lost our collective mind during the bubble. Sigh.