Wednesday, June 21, 2006

A pictorial representation of the "housing ATM"

The "housing ATM" term describes how American consumers have sustained the economy through recent years by using the recent, rapid increase in housing equity as a source of funds to help purchase consumable goods. The entire housing industry was fueled by Fed interest rates at 46-year lows, along with a spate of ARMs and riskier mortgages such as interest-only. But if you look at the GDP % growth with the housing boom subtracted away, you can see a clearer picture of how tough this recovery has really been in terms of fundamentals.

Housing has already started cooling down, most rapidly in the most overheated markets such as San Diego. The housing bubble won't burst in the same fashion as the dot-com bubble, but the sudden shutdown of the housing ATM will have a very noticeable impact on the economy. Again, look at where our GDP would be without the Mortgage Equity Withdrawal.

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