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 DEC. 18, 2006
The Wealth Effect of Home Ownership May be Ending
According to James Kennedy, an economist with the Federal Reserve Board; in the 3rd quarter of 2006 alone, home owners extracted equity totalling $113.5 billion. This is a 52% decrease from the $235.9 billion that was taken out of home values in 2005.


The amount of the equity extracted from home values in the 3rd quarter of 2006 was the smallest amount since 2003, when a total of $87.7 billion was taken out throughout the 4th quarter of that year.

The gains in U.S. home values has created a “wealth effect” that has been a driver of consumer spending. An end of that could be coming, but should not affect consumer spending for several months.

Celia Chen, an economist for Moody’s Economy.com states that it is clear that fewer households are able to take out as much equity as they were able to in the recent past. This will have an effect on the broad scope of the economy, however the impact will not be felt for about a year.

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