Wall Street economists always like to say, "the economy is on solid footing, and we would have plenty of warning if we were to enter into a recession, so I'm not worried."
Meanwhile, there's plenty of warning out there, they just aren't paying attention to it.
I highlighted another fact that I believe is noteworthy in the FOF report:
"Owners equity as a percentage of household real estate" continues to slump. The latest reading: Just 53.1%, down from 54.2% a year earlier.
This stat is computed by subtracting the value of home mortgages outstanding from the value of residential real estate, and then dividing the result by the value of residential real estate. Or in plain English, it's a rough measure of the percentage of their homes that Americans own (after any mortgage debt due).
Now 53% may not sound bad. But that includes the value of all homes with no mortgages. It's also the smallest equity position ever recorded in 55 years of record keeping (shown in the chart from Bloomberg above).
I find that astounding considering the gigantic surge in home values we've seen over the past few years. It means people have been "borrowing away" all that extra equity. Indeed, while the value of residential real estate holdings surged 49.8% between 2002 and Q4 2006, mortgage debt climbed even faster -- 62.1%.
I have a chart up at my blog showing the deterioration in this figure over time, if you're interested. Suffice it to say, it's not a pretty picture.
Juts wanted to let everyone know that the economy is very strong. Keep hearing these so called experts chime in with this opinion. So it is going to turn down soon since this herd is usually wrong.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel."
Maybe the US version should be:
My grandfather built his house. My dad owned his house. The bank owns my house. My son will live in an apartment. His son will live on the streets.
It appears that the bottom feeders may finally be getting the message on NEW. The stock is being beaten up again since Einhorn's resignation from their board of directors this morning.
Wow, what an idiot. His hedge fund bought in during March of last year and he has now lost about $150 million of his position.
A quick down and dirty calculation of equity extraction, from my story on MarketWatch:
Households cut back sharply on the equity they extracted from their homes. By one simple measure calculated by Haver Analytics, the cash that homeowners took out from new mortgages dropped to a seasonally adjusted annual rate of $168 billion in the fourth quarter from about $266 billion in the third quarter.
It was the smallest amount of equity extraction since the third quarter of 2001.
For all of 2006, cash out of mortgages was $309 billion, down from $575 billion in 2005.
Home-equity loans also slowed, increasing just $28.5 billion in the fourth quarter, the slowest growth in four years.
click to see the chart: Net worth rises at 10.5% rate in fourth quarter - MarketWatch
It means people have been "borrowing away" all that extra equity.
Thanks, Mike!
This is a point I've been hammering on for quite a while now. Once prices revert to mean, average homeowner's equity will be zip... zero... zilch. How do you trade up equity that doesn't exist?
Don't expect those homeowners without a mortgage to save the market, either. Most of them paid off their mortgage because they don't intend to ever move.
Name -- No, I don't have a good figure available for the average equity position of all homes with mortgages (it's not a data point collected by the Fed). I'll have to put tracking one down on my "to do list" because it would be a nice one to have.
Calmo, all I know about NEW is what I read here and in the papers. Read early this eve that he hadn't sold any of it-couldn't-because he was on the board.
The report shows that homeowner mortgage debt increase $148.6 Billion in Q4, 2006
This is the slowest percentage increase in homeowner mortgage debt since Q1 2000, and in dollar terms, this is the slowest increase since Q1 2002.
Non-mortgage household debt increased by a near record amount in 2006 Q4 to make up for the lower increase in mortgage debt. The ratio of household debt to GDP and disposable personal income is growing rapidly to new record highs. Consumers are locked into a death spiral.
It's funny.
Wall Street economists always like to say, "the economy is on solid footing, and we would have plenty of warning if we were to enter into a recession, so I'm not worried."
Meanwhile, there's plenty of warning out there, they just aren't paying attention to it.
Isn't it always that way?
I highlighted another fact that I believe is noteworthy in the FOF report:
"Owners equity as a percentage of household real estate" continues to slump. The latest reading: Just 53.1%, down from 54.2% a year earlier.
This stat is computed by subtracting the value of home mortgages outstanding from the value of residential real estate, and then dividing the result by the value of residential real estate. Or in plain English, it's a rough measure of the percentage of their homes that Americans own (after any mortgage debt due).
Now 53% may not sound bad. But that includes the value of all homes with no mortgages. It's also the smallest equity position ever recorded in 55 years of record keeping (shown in the chart from Bloomberg above).
I find that astounding considering the gigantic surge in home values we've seen over the past few years. It means people have been "borrowing away" all that extra equity. Indeed, while the value of residential real estate holdings surged 49.8% between 2002 and Q4 2006, mortgage debt climbed even faster -- 62.1%.
I have a chart up at my blog showing the deterioration in this figure over time, if you're interested. Suffice it to say, it's not a pretty picture.
Interest Rate Roundup: Some noteworthy stuff from the Q4 Flow of Funds
wow mortgage debt has slowed...the debt addicts did not slow on their own but were somehow forced to stop binging on debt.
Juts wanted to let everyone know that the economy is very strong. Keep hearing these so called experts chime in with this opinion. So it is going to turn down soon since this herd is usually wrong.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel."
Maybe the US version should be:
My grandfather built his house. My dad owned his house. The bank owns my house. My son will live in an apartment. His son will live on the streets.
It appears that the bottom feeders may finally be getting the message on NEW. The stock is being beaten up again since Einhorn's resignation from their board of directors this morning.
Wow, what an idiot. His hedge fund bought in during March of last year and he has now lost about $150 million of his position.
Hey, it's only money! Right?
Do you have more recent information on those positions than Dec 31 2006, mp?
Mike_in_FL:
Any idea what the percentage is if you excluded homes without mortgages?
Thanks.
A quick down and dirty calculation of equity extraction, from my story on MarketWatch:
Households cut back sharply on the equity they extracted from their homes. By one simple measure calculated by Haver Analytics, the cash that homeowners took out from new mortgages dropped to a seasonally adjusted annual rate of $168 billion in the fourth quarter from about $266 billion in the third quarter.
It was the smallest amount of equity extraction since the third quarter of 2001.
For all of 2006, cash out of mortgages was $309 billion, down from $575 billion in 2005.
Home-equity loans also slowed, increasing just $28.5 billion in the fourth quarter, the slowest growth in four years.
click to see the chart:
Net worth rises at 10.5% rate in fourth quarter - MarketWatch
It means people have been "borrowing away" all that extra equity.
Thanks, Mike!
This is a point I've been hammering on for quite a while now. Once prices revert to mean, average homeowner's equity will be zip... zero... zilch. How do you trade up equity that doesn't exist?
Don't expect those homeowners without a mortgage to save the market, either. Most of them paid off their mortgage because they don't intend to ever move.
Name -- No, I don't have a good figure available for the average equity position of all homes with mortgages (it's not a data point collected by the Fed). I'll have to put tracking one down on my "to do list" because it would be a nice one to have.
Calmo, all I know about NEW is what I read here and in the papers. Read early this eve that he hadn't sold any of it-couldn't-because he was on the board.
Calmo, I should have added that CR's toad bones help.
Mike, the last figure I heard was that approximately 35% of homes are owned outright. Extrapolate from there... it's fugly.
The report shows that homeowner mortgage debt increase $148.6 Billion in Q4, 2006
This is the slowest percentage increase in homeowner mortgage debt since Q1 2000, and in dollar terms, this is the slowest increase since Q1 2002.
Non-mortgage household debt increased by a near record amount in 2006 Q4 to make up for the lower increase in mortgage debt. The ratio of household debt to GDP and disposable personal income is growing rapidly to new record highs. Consumers are locked into a death spiral.
Year\tQ CMDEBT/GDP\tCMDEBT/DPI
2000\t4\t70.5%\t95.9%
2001\t4\t74.7%\t101.5%
2002\t4\t78.9%\t106.3%
2003\t4\t82.1%\t111.2%
2004\t4\t88.3%\t118.3%
2005\t4\t92.7%\t127.8%
2006\t1\t92.4%\t128.8%
2006\t2\t93.3%\t131.0%
2006\t3\t94.5%\t131.6%
2006\t4\t95.3%\t132.4%
The ratio of household debt to GDP and disposable personal income is growing rapidly to new record highs.
Stunning data providing clarity for my befuddled mind. Thank you for posting it.