Why Home Equity Rise May Not Equal Increased Consumer Spending

San Francisco Real EstateThe amount of the equity people have in their homes hit $10 trillion in the fourth quarter, the highest level since 2007. It’s a tidbit of data from the Federal Reserve that generated lots of excitement this week about how the comeback will lift consumer spending.

Not so fast, says Amir Sufi, a finance professor at the University of Chicago Booth School of Business. “This is not your 2002-to-2006 housing boom,” he said.

A rise in equity is closely tied to a rise in home prices. And home prices have been climbing in recent years because investors have been snapping up foreclosures in cities hard hit by the housing meltdown. These investors tend to be wealthier than the average household, so a rise in the values of the homes they own will probably not affect their spending, Sufi said.

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Authored By Dona Elboghdady – See the Full Story at The Washington Post/Wonkblog

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