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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Sun Aug 12, 2007 10:30 pm Post subject: Mortgage Equity Withdrawal Syndrome. The Third Rail of the H |
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By: Dr_Housing_Bubble
Unless you've been living under a rock, it is apparent that there will be no summer bounce in housing. This comes as a grave shock to those that are entwined like a ball of yarn with the housing industry. We've created an entirely new generation of folks that think housing equity equals housing wealth. All of us have anecdotal stories of friends, family members, or ourselves tapping into home equity for vacations, consumption purchases, or using the HELOC to pay off other credit cards. The simplicity of getting money out of your home is so easy it is frightening.
Step one , you call the bank.
Step two, you decide between a home loan or home equity line of credit.
Step three , you get a 2 nd on the home after an inflated bubble market appraisal.
Step four , your off to the spending races.
Sounds rather poetic doesn't it? But aside from the personal stories, how much money was taken out of homes at inflated prices and pumped back into this economy? The answer may surprise you.
Making Your Home a Bank
During the 1990s, in terms of tapping out equity, mortgage equity withdrawals (MEW for short) were roughly flat for a decade. It was flat for a couple of reasons. The collateralized debt obligations market wasn't as streamlined as it currently is. This made it more difficult and a longer drawn out process to extract money from your home. The next major point is home prices were stagnant throughout this decade. How are you going to extract money out of a dry well? And finally we have declining returns and world wide investors chasing stronger yields. Keep in mind it was very normal to see 35% year-over-year gains in the technology sectors. Why in the world would you want to invest in housing where over a century of gains have trended with inflation? This all changed after 9/11.
http://www.marketoracle.co.uk/Article1789.html |
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