Is the New York Fed’s Bill Dudley calling for another home price bubble to solve the malaise in retail sales in the USA?
The fate of U.S retailers, many of whom are under siege from online competitors, may rest in the prospects for the U.S. housing market, said William Dudley, president and CEO of the Federal Reserve Bank of New York, in an interview done on Tuesday morning by Macy’s CEO Terry Lundgren at the National Retail Federation’s (NRF) annual convention about evolving consumer behavior.
The second most important asset on the balance sheet of many households is housing equity. So, in addition to being a source of shelter, housing can be a major form of collateral for borrowing for many households. In fact, for those households that have collateral available to secure loans, housing equity is by far the most important form of collateral.
So, that more home prices rise, the more equity is available for home equity EXTRACTION. Remember the housing bubble?
If we look at Bill McBride’s chart of mortgage equity withdrawal, as of Q3 2016, mortgage equity withdrawal (as a percent of disposable personal income) is FINALLY positive again
And home prices are now higher (on average) than during the disastrous house price bubble … that exploded. But the GOOD NEWS is that negative equity share in housing is the lowest it has been since 2009.
Here is the problem, Terry. For most Americans, it has been the WORST wage recovery after a recession since 1965. THAT is a major reason why retail sales are in a malaise.
So if wage growth is the worst since 1965, who you gonna call to stimulate retail sales? Debt busters!!
We have already suffered through a catestrophic mortgage debt bubble and 1-4 unit mortgage debt outstanding growth is finally back in positive territory again. So I hope Dudley is NOT calling for another massive expansion in mortgage credit!
The worst wage recovery after a recession is the real cause of the retail malaise, not the lack of extractable home equity.