October 14, 2006
Cooling Housing Prices and American Consumers
Cooling Housing Prices And American Consumers
A year into the housing market's slowdown, Americans have yet to snap shut their wallets, defying predictions that the cooling market would have a chilling effect on consumer spending.
This year, despite what appears to be the most significant housing-market slump in more than a decade, the nation's consumers have increased their purchases of goods and services at an inflation-adjusted annual rate of more than 3% — just as they have for the past two years. "They're not backing off," says Janet Hoffman, managing partner of consulting firm Accenture Ltd.'s North American retail practice.
In recent years, the long run-up in real-estate prices, coupled with a proliferation of low-interest financing options, allowed many consumers to borrow against the rising value of their homes to pay for cars, vacations and home improvements, among other things. Many economists assumed that a slowdown in the overheated housing market would reverse that trend, leading to a big pullback in spending.