Home Prices Tied to Consumer Spending

With the ever-increasing housing prices, many homeowners are using their new-found equity to increase overall consumer spending.

According to Leslie Appleton-Young, the California Association of Realtors (CAR) Vice President and Chief Economist:

Over $200 BILLION per year in spending power has been added from borrowing against rising home prices

Home equity loans increased from $552 Billion in 2001 to $881 Billion in 2004

Home equity cash out refis grew from $92 Billion 1996-1999 to $400 Billion 2002-2004

It is predicted that this spending will slow down as housing price increases moderate. But what exactly does that mean?

Let's take a look at what's fueling this increase in home prices.

Strong demand from:

Low mortgage rates

Demographics - baby boomers are having a large impact

Investing in real estate instead of other investment choices

Possible speculation

Limited supply:

Limitations on new construction

Low inventory of resale homes for sale (only about 3 months supply in the SCV)

So is there housing bubble in our future? Experts say NO, but they do expect a "soft landing" where housing prices will moderate somewhat.

Ms. Appleton-Young says to expect 6%-12% growth in the Southern California market for 2006. Hmmmm... haven't we heard this before? This is exactly what we heard 4th quarter 2004, and 2005 definitely experienced much more growth than predicted!

Ahhhh... what I would give for that perfect Crystal Ball!

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Linda Slocum
HoneyStartPacking.com
Santa Clarita Real Estate