ReEconomist

Today's Negative-Equity Update

How can anyone say negative equity doesn't matter? It matters a lot. Consumer spending is 65% of our economy. First, the home ATM machine is now closed. Second, when consumers don't feel confident about their future, they pull back on spending and reign in their spending. Discretionary spending gets slashed. This phenoeman feeds on itself and the result of slower economic growth becomes self-actualizing.

Regarding falling home values, it's the unknown in consumers that causes the most angst. Not knowing how far prices can fall is a bigger part of the confidence for many than the amount of the actual correction.

For a better understanding on the top level and bottom level of home values, check out Ceiling and Floor Fundamentals at UsHousingMeltdown.org The Floor Fundamental identifies the lowest prices can go based on their ability to produce rental income.

The shorter the spread from ceiling to floor the less risk of price declines. The greater the spread from ceiling to the floor the more risk to prices.