The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: Elroy Jetson who wrote (6890)	11/17/2002 5:31:28 PM
From: Wyätt Gwyön	Read Replies (2) of 306849

Since home equity is not included in statistics of total savings, the savings rate has declined precipitously however, home equity as a percentage of total home value has fallen precipitously since the 50s. this is not very consistent with higher home equity reflecting a "stealth" savings rate these days. people continue to monetize their marginal equity based on the last sale at inflated values. the debt will remain after the values retreat. when that happens, we could really have quite a record of low home equity. some other ratios that have trended badly over this period (from the early 50s until now), indicating that the low savings rate cannot be blamed solely on the exclusion of home equity from savings rate: * household debt to GDP * debt to net worth * liabilities as a percentage of disposable personal income * cash as a percentage of liabilities The current retirement tradition of selling your home and moving to a lower cost community, in order to live off your home equity, is new tradition peculiar to the post WW-II era. this may work OK for people retiring today, when housing demand is high. but what about in 15 years when the baby boomers are retiring en masse? who will they all sell their houses to? Congress in their wisdom have decided that our nation's wealth is best invested in large single-family homes rather than in factories or research and development this can only end very badly. perhaps the chinese won't copy the Japanese and keep all their trade surplus reserves in the fiat currency of the world's biggest debtor nation. maybe even the Japanese will get cold feet. what happens to our housing stock if and when the dollar breaks? the first thing to happen will be higher interest rates. this won't help people trying to buy a house based on monthly "cash flow". In coming years all Americans will be employed as gardeners, maids and handymen at each other's large homes. LOL, don't forget backrubs. an important contributor to the hedonic indexing of our economic powerhouse in the 90s.

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