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Originally Posted by twaddle
Like I said, two things:
1) The wealth effect. People spend less when they feel less rich.
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OK, some will see that from an emotional viewpoint. Again, it probably does not make real sense, unless you are downsizing. Maybe I feel a bit more immune to this as I don't bother to count my house equity in my 'net worth' - since I can't get an EOD or EOM quote on it at a click of the mouse, I just think of it as a little 'back pocket' insurance (if I downsize or reverse mortgage) on my SWR.
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2) Less equity extraction. People have been spending via home equity loans.
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Yes, it will have an effect there. In the long run, I'm not sure that is a bad thing. If people never learn the dangers of over-extending, then why not always over-extend? That will lead to a super-bubble someday.
-ERD50
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