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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: orkrious who wrote (71326)2/3/2007 12:32:49 PM
From: jimmgRead Replies (1) of 306849
 
<The economy was supported by the housing ATM and the ATM has dried up. It takes time to filter through the economy.>

The economy has moved beyond housing as the primary driver. Housing was the driver in 2002-2005 but has now broadened out considerably.

Doug Noland talks about this a lot. I think he mentions it again this week as he talks about the self-reinforcing feeding of the credit bubble by wage gains. Wage gains encourage more consumption and borrowing capacity which feeds more employment and so on.

This is according to Kurt Richebacher:

"The fact is that private households have drastically curbed their mortgage borrowing. It amounted to $672.7 billion in the third quarter 2006, sharply down from $1,223.6 billion in the same quarter of last year. That is, consumer borrowing almost halved. It amazes us how little attention this fact finds."

safehaven.com

So cash out refis dropped $550 billion in the 3rd quarter of last year while personal consumption growth accelerated in the 4th quarter of 2006. This would not seem to make sense.

The reason for this is the broadening out of the economy beyond housing as the primary driver.

I think housing is a bubble but is likely to decline in real terms over a number of years while nominal price declines are subdued. I also think the strength early on this Spring will surprise most people because home sales are driven primarily by consumer confidence, employment and interest rates all of which are highly supportive of the housing market.
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