Thursday, June 2, 2011

more on housing, debt, and the consumer

Two excellent editorials from today's WSJ discuss the "housing trap", consumer spending and the staggering debt confronting Americans and our economy today (When the Value of Housing Ruins the Home and The Housing Illusion). I recommend both for your study.Link

Regarding consumer spending, one noteworthy comparative set of statistics from "When the Value of Housing Ruins the Home" is dramatic: In 1985 12% of personal disposable income came from savings and 1% came from home equity lines of credit. By 2007 those numbers had virtually reversed as 10% of disposable income came from home related credit and only 1% came from savings.

The personal debt situation had changed dramatically in just 22 years. Now that debt has to be repaid, so we're saving more and of necessity spending less. Houses are no longer viewed as "no risk" asset appreciating piggybanks, which is a good thing, but consumer spending will suffer for many years to come as we work down our debt.

The second editorial makes the point that while housing will always be important, as a society we need to subsidize it much less than currently and instead focus on the things that will help grow our economy and jobs. That is, we should do more to encourage entrepreneurs and their innovations, along with new ideas. And it concludes, "We need an investment boom, not another housing bubble."

Thanks. Bob.

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