"Mortgage Equity Withdrawal" -- your chart o'the day

deepsepia · 11-19-2008, 02:56 AM

"Mortgage Equity Withdrawal" is the money people take out of their homes through home equity loans, etc.

Why does it matter? Because it was essentially "standing in" for the savings that Americans weren't making. Although this chart only goes to 2007, it seems that in 2008, Americans will have been unable to extract any cash for equity in their mortgaged homes . . . bear in mind that money that you take out of a home through a home equity loan is tax free-- and you'll see that this causes a dramatic decline in equivalent taxable income.

Dropping to zero, which seems likely, this equates to an %8 after tax fall in real income. Add to that the high fuel costs from earlier in the year, and job loss . . . and there's no wonder why the consumer is AWOL

Now think about this in the context of the collapse of the personal savings rate (the time series here is not the same, but the longer perspective is interesting, IMO)

The picture that emerges is that Americans were financing consumption in excess of income through borrowing against home appreciation. About the only thing I can conclude is that its unlikely we can return to prosperity without some major adjustments, though I don't know what they should be.

**Meursault** · 11-19-2008, 10:57 AM

I can't make much sense of it yet, I'll have to take another look later on, once I find my thinking cap.

11-19-2008, 02:56 AM	#1
deepsepia Join Date: Aug 2006 Posts: 3,665 Thanks: 31 Thanked 22 Times in 5 Posts	"Mortgage Equity Withdrawal" -- your chart o'the day "Mortgage Equity Withdrawal" is the money people take out of their homes through home equity loans, etc. Why does it matter? Because it was essentially "standing in" for the savings that Americans weren't making. Although this chart only goes to 2007, it seems that in 2008, Americans will have been unable to extract any cash for equity in their mortgaged homes . . . bear in mind that money that you take out of a home through a home equity loan is tax free-- and you'll see that this causes a dramatic decline in equivalent taxable income. Dropping to zero, which seems likely, this equates to an %8 after tax fall in real income. Add to that the high fuel costs from earlier in the year, and job loss . . . and there's no wonder why the consumer is AWOL Now think about this in the context of the collapse of the personal savings rate (the time series here is not the same, but the longer perspective is interesting, IMO) The picture that emerges is that Americans were financing consumption in excess of income through borrowing against home appreciation. About the only thing I can conclude is that its unlikely we can return to prosperity without some major adjustments, though I don't know what they should be. __________________ "Sort of, but not really." Last edited by deepsepia : 11-19-2008 at 03:03 AM.

11-19-2008, 10:57 AM	#2
Meursault Le Mod Join Date: Feb 2006 Location: Old Europe Posts: 38,948 Thanks: 141 Thanked 90 Times in 36 Posts	I can't make much sense of it yet, I'll have to take another look later on, once I find my thinking cap. __________________ sick sig courtesy of teabelly!

Similar Threads
Thread	Thread Starter	Forum	Replies	Last Post
Chart o'the day: World Military Spending	deepsepia	News and Views	61	11-09-2008 06:10 PM
Your Chart o'the day: Debt per car for GM and Ford	deepsepia	News and Views	4	10-30-2008 07:39 PM
Your chart o'the day: tell your kid to copy Jussi's answers	deepsepia	News and Views	15	10-30-2008 05:51 PM
Debt as a percentage of GDP: your chart o'the day	deepsepia	Serious Discussion	59	10-13-2008 05:53 PM
Wife auctions rival's "humongous" panty & "small-size" empty condom wrapper	Cachondo	News and Views	2	08-14-2008 03:07 AM