Isn't it time for Paulson to make his monthly call for the bottom in housing, again? Maybe he's poring over the inventory and sales numbers and reaching for that trusty magic 8-ball?

That then seems to imply to me that there are small slice of people out there (1/3 to 1/6th the home owning public?) with A LOT of household real estate debt to make that 52.7% debt/equity ratio.

You got it. Figure that those that own their homes free & clear are either rich, retired or both, and you see that they're not likely to be active in the RE market, either.

I expect we'll see new records set every time this is reported for the next few years at least.

I saw an estimate the other day (can't recall where) that about 18 percent of the homes on which a mortgage was taken out last year (purchase or refi loan) have negative equity. This would result from a high LTV to begin with, exacerbated by a decline in value since the time of origination.

What I think about the market [total silence, grandfather clock heard ticking] is that I read headlines that the market is afraid of inflation...and hence either Fed tightening or Fed stasis.

And here, Sebastian, is where foreign exchange rates come into play.

If...I asy if...inflation is a worry, it is a worry, not because American made goods are so expensive, but because the dollar is so weak.

Most foreign companies that export into the US are able to control their pricing to factor out the dollar...but that only can go on for so long.

And if the Fed were to ease? Well, then we would really have inflation, because, well, because the dollar would continue down, down, down.

So, IF the Fed actually wants to fight inflation, it must keep interest rates where they are or raise them...on account of the dollar.

Yes, Sebastian....a decline in the tendancy to hold equity in the form of a house has helped produce all of the GDP growth since the early 1950s, and yes, everytime people started increasing their home equity, GDP kindof stalled. That just goes to show that prosperity can in fact be borrowed from the future and I think everyone can agree with that.

The question before us NOW is not whether homeowners are skimming from their increasing home prices to enable GDP growth.....NOW they are losing home equity without that producing cash to spend on GDP growth....it's gonna hurt a bit.

Low cost debt, might provide a better return than safe equity.

In a pinch, one could adjust ira contributions down (projected 8% cross cycle return on index fund), or take out debt (pay 5% fixed in 2005).

With or without the asset bubble, the debt bubble makes sense at such a low cost of money. Especially for under 40's who will weather this bubble and maybe see three more before it over.

the impressing part in the graph is seing household value fall while debt stays the same.
My bet is that house prices will fall faster than people will dthe sefault on their mortgages and bank will go bankrupt. Hence, the squeeze is going to be hard. Indeed the long term mean of household value may well be around 100%...

Agree with most of the comments above. Especially the idea that economic activity can be funded by falling home equity for a long long time if need be. What is changing in the near future though is that the boomers are retiring and their income will soon drop significantly. If one also factors in the national debt by the federal government our home equity drops perhaps to zero. In an un-influenced market one would expect more ups and downs in GDP, consumer spending, etc...But we migth also have zero inflation....

However our government is full life time politicians who want to keep their jobs by eliminating the economic down cycles by applying keynesiun economics and using deficit spending. Only when times are good they never do the opposite which would be to run budget surpluses and pay down the debt.

When I look into the future I see huge social security, medicare, national debt obligations... and a citizenry who on whole has much less equity/wealth/capitol whatever you prefer to call it (See the household chart) I make this assumption because the equity to household value in and of itself is kind of inflation adjusted and its down since 1952.

So while times have been good and we've not really had any economic downturns the trade off is that as a society we have been spending our capitol. If the USA citizenry were a business the stockholder equity on the balance sheet would be dropping.

Now I'll admit it make since to borrow and spend when rates are low but you can't do it forever. And on whole we cant have negative stockholder equity forever,,etc..

At some point interest rates go up to continue the trend or we begin to pay off our obligations and that will be painful and not fun.

The third option is that our government simply turns on the printing presses to avoid a depression which will further reduce american citizen equity in terms of real purchase power and destroy the ability of American to sell debt instruments to foreigners. Thus we inflate our way out of our obligations and return to a more un-influenced economy by lack of faith in the dollar.

My bet is that this is what our government will do. Again when this happens I don't know. There is still a lot of capitol the citzens have that can be spent but it will end. The question is can the FED, the federal government put the brakes on and slowly undue this before my dire prediction come true. I'm talking about 40 years of slow to no growth economy...paying off our obligations...all the while using the slow march of inflation to help us.

Or will things go completely in the toilet and the stupid citizens also spend up all of our freedom in return for hopeless facism and socialism