The Following chart (by Chart of the Day) illustrates the sharp fall in the value of homes. Considering the fact that various other studies point the impact of wealth effect point to a correlation of 3-5% on the lower side, and a correlation of about 25% on the higher side, invariably all home owners (even those who bought their homes in the 1990s) will be feeling the impact of the falling home prices. Even if they do not feel poorer, they definitely will not feel richer.
Those excited by the positive wealth effect due to the rally, should keep in that the present rally has invariably has mostly benefitted only those in index funds, while those who own single family homes have not had a large rally that could lift their willingness to resume consumption. At best, the prices have not fallen any further, but that is hardly a reason to celebrate.
Probably the song line, "we have been down for so long, that it feels like it is up" has never been more valid than today.
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