McSecond Thoughts: Canary in the Coal Mine?

by Alex Stenback on November 7, 2005

[Forgive us, again, for the light posting lately.  The culprit this time around was a trip to visit the In-Laws on Dataw Island near Beaufort, South Carolina.]

The Strib Recently ran an article on the buyers remorse now emerging among some who, having built 5,000 square foot suburban cathedrals, are realizing that the cost to heat, clean, mow, etc. is more than they anticipated, in both time and money. 

But our take away from the article, though it did not make this point, is this sobering thought:  Real Estate and the consumer, (whose spending has been fueled largely by low rates and the easy access to cash the real estate boom has provided,) have been the two most significant factors in keeping our economy churning over the past several years.  In fact, one might argue that it is exactly this McMansion demographic (high earning, high spending, highly leveraged) doing most of the spending, and supporting the economy.

Now, with energy costs and interest rates spiking, and signs that homeowners are thinking (maybe, finally?) "cut back" instead of "borrow/earn more" could a slowdown in consumer spending and real estate appreciation be headed our way?  If so, this is NOT good news for the economy.  A tiring, over-extended consumer, faced with negative real wage growth, inflation, rising interest rates, and less-ready access to home equity cash, is not a recipe for a strong economy – the Mcmansion set may very well be our canary in the economic coal mine.
Living Large and Paying Big [strib]

{ 2 comments… read them below or add one }

Ed Kohler November 7, 2005 at 7:56 pm

I thought the statement by “one couple” who said they were going to wait to see what oil prices were like in the spring before making a decision on a mortgage was kind of odd.

That’s like buying a Prius the week after Katrina because gas prices were so high.

Are people considering suitable time frames when they’re making affordability decisions?

Editor November 7, 2005 at 8:49 pm

What do you mean? I always recommend people make long term home buying decisions based on the price of a single commodity at some arbitrary future date. But oil? That’s sooooo 1978.

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