Secular decline in US housing equity
By Global Macro Monitor
We stumbled upon this interesting chart from the Financial Stability Oversight Council’s 2011 Annual report which shows the share of owner equity in household real estate. It surprised us, not so much in that it is at record lows, but that owner equity showed only a blip upward during the housing bubble. The secular decline in owner equity is also an eye opener.
The no down payment, “liar loan,” option ARM fueled housing bubble inflated real estate values, which allowed the economy to take on even more debt collateralized by “fake” equity. Talk about a deceptive positive feedback loop!
The housing ATM fueled consumption, growth, a massive U.S. current account deficit and huge increase in the global monetary base as foreign central banks intervened to prevent their currencies from appreciating.
Debt financed consumption doesn’t create new aggregate demand it just moves it forward and borrows it from the future. Now we pay. And the younger generation represented in the Occupy Wall Street crowd is not happy and looking for heads.
I see US house prices falling further and eroding the amount of homeowners equity in housing still further. When you consider that many have no mortgage at all the rest are in serious trouble to varying degrees. The last thirty years property bubble was only possible because of greater participation in the work place by women principally and lax lending standards. A return to stable lending criteria that are sustainable would mean house prices falling even further. When you factor in the fact that there are deleveraging pressures world wide then support for housing will suffer.
Since the Carter administration when neo-liberalism began to dismantle the New Deal, as a growing percentage of income has accrued to profits while wages have stagnated and declined, loaning wage earners back the profits expropriated from their labor by owners has underpinned the financialization of the US economy. Wage earners have paid an growing rent on what should have been theirs to owners who loan it back to them to sustain demand. It was not demand borrowed from the future, it is demand that was expropriated in the past and rented back to those who really earned it.
https://4.bp.blogspot.com/-a76O-27KaF8/TcS3ghDhKFI/AAAAAAAAAl0/9yPSb-Gvjxk/s1600/fig1_ProdWages.jpg
Looks like a chart of mortgage rates over the same time period. I wonder if the two would be connected, hmm???