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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Les H who wrote (64194)2/2/2001 5:48:03 PM
From: Mark Adams   of 436258
 
I've heard this mentioned several times. So I'm going to propose an alternative explanation for the increase in debt/home equity relationship.

Higher employment in the US has created a situation where more people can participate in ownership. So as people who previously rented buy their first home, they naturally have a lower equity in percentage terms.

Further, changes in the capital gains tax of a primary residence has enabled previous long term home owners to cash out their equity and move to a more suitable property. Cashing out means capital available for bonds, CDs or equity. Note those CD's boost the M1-MZM ratios we are quite alarmed over. Unless they believe they need a bigger more expensive home, or want to own it free and clear, it's quite possible this tax change enabled migration of older folk will result in a lower equity ratio too. That doesn't mean that they are on the verge of eating dog food though.

While I agree that increased debt is a concern, I think this is yet another example of harping on a ratio without really considering the underlying changes taking place.

The sheer magnitude of the figures makes it difficult for many to get a handle on the situation. Mortgage debt is one such figure. Ten years ago this was about 35 per cent of a home’s value; it’s now about 50, a 33 per cent increase. To say this situation is troubling is to put it mildly.

newaus.com.au
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