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| quote: | Originally posted by jerZ07002
unemployment - less than 6% (less than almost all eurozone countries)
inflation - less than 6% - and only for a short period because energy has decreased significantly.
home value should not have any effect on consumer spending. it's stupid that people base their consumption levels on the equity built in their house. it's not much different than saying because i have a 100k credit limit on my credit card i have 100k extra to spend. not many people take that stance. although the consumer always has the out of not paying the home equity loans and letting the bank foreclose, although that is not intelligent. |
Home values have a significant effect on consumer spending, more so then stocks. The wealth effect, the effect on spending of having assets, is much greater in housing then in stocks. The federal reserve has written some good papers on this if you're interested in getting the full details.
It may be stupid but no one has tried to claim the populus is smart.
The stance is not that they spend 100k more if they have that much credit, it's that they don't hesitate as much when picking up a twinky, a soda, or a CD. The wealth effect is a small percentage of the total wealth. On 100k it might only add 500 - 1000 extra spending a year.
The consumers are in taking thier outs, so much so that the banks have invented a new term, jingle mail. That's when someone mails thier keys instead of a check. The big surprise is that in the past the houseing debt was the first to be managed, then the car, then the heat, then credit cards. Now houses are being walked away from early, especially because in many cases the total debt owed to the bank is more then the value of the house.
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