Those who believe that the only certainties in life are death and taxes can now add a third to the list: personal debt. Sounds scary!! From your source:
Indeed, at the end of 2005, U.S. consumers had $2.2 trillion in debt, including revolving credit-card accounts and student loans, up 22 percent from 2004, when it hit $1.8 trillion.
Wow!! Debt went up $400 billion? While interest rates were at record low levels? Why would people borrow more while rates are low?
Maybe to increase their net worth? Assets only rose $3.7 trillion over the same period.
Those who believe that the only certainties in life are death and taxes can now add a third to the list: personal debt.
Sounds scary!! From your source:
Indeed, at the end of 2005, U.S. consumers had $2.2 trillion in debt, including revolving credit-card accounts and student loans, up 22 percent from 2004, when it hit $1.8 trillion.
Wow!! Debt went up $400 billion? While interest rates were at record low levels? Why would people borrow more while rates are low?
Maybe to increase their net worth? Assets only rose $3.7 trillion over the same period.
This virtual asset increase is largely the marked up valuation on the housing stock against which households have been borrowing to fund their spending beyond current income.
This perception that a depreciating physical asset is really a bottomless piggy-bank that can serve as a second income is due to experience a rude awakening, especially for those who have "tapped" their equity with interest-only adjustable rate loans that will be resetting soon in a rising interest rate environment that will push their monthly payments up sharply, and eat into their "first" incomes, as long as they have their jobs.
For a report on the leading edge of this wakeup, see:
Cluster Selling
http://piggington.com/cluster_selling http://www.voiceofsandiego.org/site/apps/nl/content2.asp?c=euLTJbMUKvH&b=486837&ct=2015335 February 10, 2006 - 9:21am
Will Carless at the Voice has written an intriguing piece on cluster selling. This term describes a dynamic that is apparently taking place in San Diego wherein homeowners put their homes up for sale as they see their neighbors doing the same, resulting in concentrations of for-sale inventory in neighborhoods where this is happening. Several real estate agents "in the field" have apparently corroborated that cluster selling is taking place for the first time since housing bottomed out in the 90s.
The idea that cluster selling may be taking place fits in with what I've been seeing. As Premium users know, we have in recent months seen an interesting divergence in home price behavior: while the countywide median price has been fairly firm, over 20% of individual zip codes have seen their year-over-year prices decline by 5% or more. Cluster selling could certainly help to explain why certain zip codes are doing so much worse than others.
The idea that reality would start to dawn in pockets and through personal communication makes sense as well. Imagine this scene taking place...
Bob: Hi Jim - I see you have put your home up for sale. Why is that?
Jim: Hi Bob - I believe that home prices may decline, so I am going to take my equity off the table and rent for a while.
Bob: Don't you know that there is a housing shortage? And that everyone wants to live here? And that real estate always goes up? Etc?
Jim: Actually, as you would probably surmise from my urbane manner and chiseled good looks, I am a Premium Member of Piggington's Econo-Almanac. Therefore I know that there is no housing shortage, that San Diego's desirability in no way shields it from a housing downturn, and that, as a matter of fact, over 20% of San Diego zip codes have now had year-over-year price declines. I am, as they say, getting out while the getting is good.
Bob: Hmmm, I never read about any of that in the NAR press releases. I'd better go research the matter further.
Two Weeks Later...
Festus: Hi Bob - I see you have put your home up for sale. Why is that?