The SanityPrompt

This blog represents some small and occasional efforts to add a note of sanity to discussions of politics and policy. This blog best viewed with Internet Explorer @ 1024x768

Thursday, August 25, 2005

Borrowed Time

My brother in law sent me a recent report from TD Bank Financial Group. Their assessment? That the US expansion is on borrowed time. They acknowledge the widespread belief in a housing bubble but argue that this issue is beside the point. They estimate that half of the current expansion is attributable to the "wealth effect" associated with the boom in housing prices. The US consumers penchant for debtis well known, but much of their current consumption is being fed by their home equity. Only 17% of the people in LA make enough to afford the median priced home. How are people financing their purchase? Through risky vehicles such as interest only mortgages or adjustable rates that will turn ugly if rates rise sharply or if housing equity falls rapidly. You can read the full report here.

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