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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: saveslivesbyday who wrote (71343)	2/3/2007 2:51:05 PM
From: ChanceIs	Read Replies (1) \| Respond to of 306849

>>>New Worth is concentrated in appreciating home values, and this apparently gives Americans the confidence to borrow rather than save.<<< Hmmmmmmmmmmmmmmm. Hmmmm. Hmmmmmmmmmmmmmmmmmmmmmmmmmm. The chart posted by jimmg and reposted below is fairly unambiguous - there is a lot of household wealth out there: How does this reconcile with the gloom and doomsters??? Some of it might be in retirement accounts. It is clear from Contrary's website that the growth in household assets has come from real estate and equities (probably mostly real estate): Contrary's website also indicates that owner's equity percentage in real estate has dropped to an all time low. This does not in and of itself indicate that net worth has dropped, but suggests that the HELOC is beginning to get tapped out. The chart below and the one at the top are in disagreement. Below shows liabilities against real estate are 50%, while the top might indicate less than 20% - per a rough eyeball: Everything else on Contrary's site shows that the ability to further borrow against assets is contracting quickly: mortgage/disposable, debt service ratio, etc. I think that we are levered about as far as we can get. We have certainly never been in this state (as far out on the limb) before. If loans are secured against very inflated assets (real estate and stocks) then further leverage is unlikely. Unlike stocks, there is no margin call against HELOC and FIXED RATE mortgages. I think that rates will rise. As has been said so many times, those with ARMs will get a margin call. Summary A: I think jimmg's chart overstates the asset base, at least vis-a-vis (real estate equity)/(real estate value). If/when real estate declines, the rate of decrease in owner's equity percentage will increase dramatically since we are starting at a low 55% (anybody ever get a margin call). Even if prices are static, further borrowing/leveraging seems difficult especially if rates rise. Rising rates will in general not result in loan calls, especially since the reevaluation downwards of real estate takes such a long time. Summary B (somewhat restating Summary A): These two charts simply don't jive - no way - no how: Possible resolutions: 1) The chart immediately above uses stale ('05) real estate values, and more likely 2) the liabilities shown immediately above don't include mortgage debt. IOW we are looking at credit card and potentially HELOCs as the liabilities shown above.