...Researchers discovered that spending increased more when home values climbed. "We have shown that consumers react more radically to changes in their housing wealth than in the size of their bank accounts," said co-author Gary Painter, director of the Lusk Center for Real Estate at USC.
They compared the $9.6 trillion in home equity gained between 2000 and 2005 with the $8 trillion in paper wealth destroyed during the 2000-01 stock market crash and came up with this scenario.
The authors said a 10% decline in national housing wealth from 2005 could cause consumer spending to fall 1.2%, or $105 billion. Combine that with stock market losses and layoffs and you have this:
"Taken together, they increasingly suggest that there will be longer-term effects for the U.S. and global economies," said Raphael Bostic, associate director of the Lusk Center...
October 31, 2008