The Family Piggy Bank

Americans are taking enormous amounts of equity out of their homes. That "giant sucking sound" that Ross Perot heard from south of the border is now the sound of billions of dollars of equity being sucked out and, in many cases, thrown away.

The numbers over the last few years are pretty remarkable:

Equity Taken Out of US Homes (In Billions)

YEAR	DOLLARS
1999	9
2000	26
2004	139
2005	450

While some of this equity was taken out for items that have the potential to increase the homes value (35% was for home improvement), much of it did not.  42% was spent on consumer purchases, or, in other words, to buy more stuff!

As we head into a period of time when much of the country is likely to see significantly slower appreciation than we have over the last few years this is worrisome. Add to this the number of homeowners who bought their homes with interest only and/or adjustable rate mortgages and it can get very frightening.

My concern for the overall real estate marketplace is that there are large numbers of foreclosures coming. If that should happen the downward pressure on prices is likely to be more significant than what we've seen with the current market slowdown.

And, of course, in the larger economic picture this would be very bad news for the economy and certainly has the potential for sending us towards recession.

So...if you've been contemplating taking out that home equity loan, think about it again! If you've already got one, time to work on paying it off as soon as possible.

And, if you've been wondering about selling your house and worried about the current market this certainly factors into considerations about timing. While it may seem like a tough time to sell, there are no guarantees it's better a year from now!