The Foreclosure Report

'Home Equity Fountain Of Youth Drying Up'

The San Francisco Chronicle looks at US savings rates and debt. "When the Commerce Department recently tallied up consumer finances for November, it found that Americans shelled out more money than they took in. It was the seventh such month of red ink during 2005. In November the savings rate was a negative 0.2 percent."

"Given how much red ink households racked up in the first 11 months of last year, Kevin Lansing said the nation's personal savings rate could well be negative for all of 2005."

"That, he added, would be 'the first such occurrence since the Great Depression.'"

"But other economists, including current members of the Federal Reserve, say the falling savings rate isn't so alarming. They argue that the declining savings rate has been offset by another factor, rising home prices. 'A lot of the psychology of savings is that you're prepared for an emergency,' said economist Tim Kane with the Heritage Foundation in Washington. 'And if your house is worth 10 percent more, then you feel you're prepared.'"

"In a sense, the American home has become the proverbial cake that consumers can have and eat as well, optimists say. 'Consumers want to borrow, tapping the equity they have in their homes,' said Kieth Leggett, the American Bankers Association economist. 'We have really figured out a way of banking to free up illiquid assets so they have greater liquidity.'"

"But many economists say housing prices will, at best, flatten out, breaking the cycle of refinancing that has allowed consumers to borrow and spend. 'I'm afraid the home equity fountain of youth is going to dry up,' said Scott Anderson, an economist with Wells Fargo. He said Freddie Mac, the giant mortgage reseller, projects that consumers will withdraw a record $200 billion in cash-out financings in 2005, a figure that is expected to fall to $110 billion in 2006 as mortgage rates rise."

"Oakland homeowner Sue McCullough, 46, has experienced the pitfalls of going from two incomes down to one. They owned a fourplex, living in one unit and renting out the others. A string of bad breaks eventually caused them to lose their property in St. Louis and file for bankruptcy in 1997."

posted by Ben Jones @ 12:27 PM