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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Elroy Jetson who wrote (12681)10/2/2004 7:10:08 PM
From: GraceZ  Read Replies (2) of 116555
 
I always forget how impossible it is to have any kind of adult interaction with you.

You can go around with the figures all you want but the fact is that people have chosen for any number of reasons to assign a higher value to real estate while at the same time others have decided that RE lending has less inherent risk thus giving a large group of people access to low fixed or floating rate financing for any number of things, some of which are not current consumption.

I have people approach me all the time with the idea of borrowing out of their house for purposes of investment since one can invest with a reasonable amount of risk in some vehicle that pays 10% while borrowing at 5%, to them it seems like a no brainer. If you want to think of this kind of activity as "eating the house" then go ahead. I think of it as "betting the farm" and usually talk them out of it.

Most here want to think that people are borrowing from their houses out of necessity and certainly that is true in places, but the fact is that the house has become the lowest cost, easiest to use financing vehicle for spending that used to be financed at much higher rates using consumer loans and credit cards. The evidense for that is the slow growth in consumer financing which used to have a rather stellar growth trajectory. Back in the mid 1990s it was growing at double digit annualized rates and has recently dropped to low to mid single digit rates.

economagic.com
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