We've Only Just Begun

While I am a doubter in regards to the housing "crash", I do believe that housing price weakness is real. The next effect from that weakness is that home equity growth (or shrinking home equity) means that consumers will be able to withdrawal less from their homes in the form of home equity lines of credit, and that reduction could (should) lead to slowing consumer demand.

Today Merrill Lynch's David Rosenberg agrees:

"The question that nags us is this: considering the sharp slide in energy prices and boom in the equity market since the summer, why hasn’t there been a bigger bounce in consumer confidence and spending? Look at the fourth quarter data and you will see that in nominal terms, consumer spending slowed noticeably — much of the ‘real growth’ merely reflected the gasoline-induced falloff in the price deflator. It could well be that we have turned to a new chapter in this housing recession story — which involves home price weakness, commensurate negative wealth effects, a rebounding savings rate and perhaps just a slightly less resilient consumer. "

Timothy Burger
timothyb(at)timothyburger.com