What Happened To Equity Withdrawal

Back during the boom there was a constant withdrawal of equity. People did not view it as a second mortgage - they viewed it as using their money, now, the way they wanted to. Some used the funds to fix up their properties and increase the value - kind of a break-even use. Others used the money on cars, trips, clothes, and other day-to-day expenses. Owning a property was synonymous with having money. Even if you put little to no money down you could probably find a lender that would lend you the sparse negative equity you had. In the most extreme cases people were even borrowing negative equity.

Why worry, house prices only went one way so it was a win-win situation. All homeowners were rich. All homeowners had access to "their" money. Then Crash. The whole illusion was gone. People found that they really owed "their" money back to a lender. People found they had to pay back, yes that is right pay back, the funds they borrowed. This brings us to an article at Bloomberg News titled Your Personal Bailout Check Isn't in the Mail: John F. Wasik. While the article touches on several different economic and political issues, the view and reduction of equity withdrawal stands out. Lets take a look -

One of the core assumptions of a credit-based, consumer- driven economy is that spending is generally beneficial. It makes cash registers ring, sells homes, cars and appliances. Yet what happens when the middle class gets tapped out?

People have maxed out on their credit cards and their retirement funds are devastated. Millions will have to work longer and have probably taken as much money out of their homes as they can.

Home-equity extraction -- the amount of cash taken out of a property -- dipped to a 10-year low of $9.5 billion in the second quarter, according to the Federal Reserve. That compares with $224 billion during the height of the housing bubble in the first quarter of 2006.

Recently we had a post that noted "consumer patriotism." Many Americans have long viewed one of their central roles was to spend, spend, spend and shop, shop, shop. We indulged ourselves and used any means necessary to partake in our role. Now we are feeling the consequences with record foreclosures, records in negative savings, records in debt.