Will the Housing Slump Level Consumers?

Will the Housing Slump Level Consumers?

Economists are debating whether a sharp drop in home sales and price appreciation will depress consumer spending, which is about two-thirds of the economy.  The theory is that a sharp rise in home equity helped push spending up faster than income starting in the late-1990s until last year.  Now, as the housing market has soured, consumers not only feel less wealthy, but have less equity to use for other spending.

Some caution that while mortgage equity withdrawal has declined, it’s hardly disappeared.  Mortgage giant Freddie Mac says consumers cashed out $70.5 billion via refinancing in the first quarter of 2007, compared with $77 billion at the end of 2006.  Most of those pulling cash from their homes owned them more than three years and had average appreciation gains of 24%.  Freddie Mac expects cash-outs to keep declining, though staying above historical averages for many months.

What about you?  How is the housing slump affecting your spending, if it is at all.  We’d love to hear your comment by clicking the Comment link below.