Housing Trends: Home Sales Down, Refi Market Weak

February data from CoreLogic covering U.S. housing and mortgage trends shows home sales are down, prices fell rapidly in 2010, and the refinance market is weak due to lack of equity.

Total estimated home sales in 2010 were 3.6 million units, down from 4.1 million units in 2009. (CoreLogic notes this estimate is different from the National Association of Realtors' data, which indicates sales fell only 5% in 2010.)

Average home prices fell 5.1% in November from the previous year's November price index, and the discount in price for distressed sales rose to 37% in 2010, up from 26% in 2008 and 30% in 2009, according to CoreLogic.

The report shows 16 months of visible inventory in November, at the highest level since February 2009, compared with "normal" levels of six to seven months of inventory.

In terms of mortgage applications and negative home equity, the refi share of applications was above 70% in December, with more than 50% of outstanding mortgages having rates that are 100 basis points above current rates, thus leading to refinancing. For purchase mortgages, weak demand and tight credit have led to a leveling off for loans. The rate is not expected to increase substantially in 2011, according to CoreLogic.

For owner-occupied purchase originations and loan to value ratios, the two most popular purchase mortgage segments, the 75-85% LTV group and the 95-100% LTV proportion, diverged in terms of growth (see chart above). The 75-85% group fell from 45% of originations in 2005 to the mid teens by 2010. Contrary to that trend, the 95-100% LTV group, which usually receives FHA financing, nearly doubled in proportion, from 12% in 2005 to more than 46% in 2010.

First-time buyers could benefit from a £16m package of investment announced by the Scottish Government.

The money is aimed at helping people buy property and kick-start construction on new housing.

About £10m from the total will be invested in a loan fund which the Government says will help unblock projects, accelerating construction of up to 2500 houses.

A shared equity scheme will be given £3m to help people on low to moderate incomes in rural areas get into the property market.

The final £3m will go to a further equity programme designed with house-builders to help families on low incomes buy new homes.

Housing Minister Alex Neil said: "A healthy housing sector is a critical part of economic recovery.

"These funds will support creative and innovative schemes aimed at invigorating the housing industry across the country, which will increase choice and opportunities for those looking for a home.

"It will also help to safeguard jobs in Scotland's hard-pressed house-building industry."

The Conservatives argued for the extra money during negotiations with Finance Secretary John Swinney in the run up to the Scottish budget announcement on Wednesday.

Tory finance spokesman Derek Brownlee said: "The additional funding will not only allow many families to get on the housing ladder, it will provide a timely boost to the construction industry and create and protect these thousands of jobs."

How fear can hold you back from creating lasting wealth

With the right financial and investment advice, you can make decisions now that will help pave the way for a financially free retirement. That is, provided that you don't let fear hold you back...

If you have untapped equity in your home, it's like stashing cash under your mattress: it sits there, unnoticed and unused, and fails to help you reach your financial goals.

"Equity is unrealised value which, with property, you can borrow against to use for other means," explains Debbie Williams, director of Equity Finder.

In simple terms, equity is the difference between the value of your home (say $500,000) and how much you owe ($300,000). In this case, you would have equity of $200,000.

"Many people are reluctant to access equity in their own home because they think they're putting everything on the line. If something goes wrong, they could lose their home, the roof over their head," Williams says.

"But the same could be said if you don't do anything. What opportunities are you letting slip through your fingers by thinking that you don't have the funds to invest?"

In order to really make your equity work for you, you need to adopt the right mindset, Williams explains. If you are fearful about tapping into your home equity and you're not committed to the process of leveraging your funds into an investment, you could wind up in trouble.

"I recently worked with a couple in their 70s. They had watched my husband and I renovate and develop property over a number of years and finally wanted to get in on the action," she says.

"I took them to the bank and organised a loan for them."

The pair planned to buy a large 1,200m2 block of land that they could split and construct a new house behind the existing dwelling. They tapped into their equity and got approved for a loan of 70% of the value of their home, which freed up $450,000 – more than enough to cover the house and land's $229,000 purchase price.

The mortgage product was a line of credit, which means they were only required to pay interest on the funds that were drawn down. So even though the facility was for $450,000, they would only pay interest on $229,000.

"But, the amount of money was too much for them to contemplate – so they went back to the bank and reduced to the line of credit from $450,000 to $250,000. That gave them enough to purchase the property and pay all of the associate buying costs," Williams says.

"What they didn't consider was the building cost for the new house, and when they went back to the bank for more money, neither of them was working any longer. As a result, their finance was refused."

Williams says all of their issues wouldn't have existed "if they'd been prepared to continue with coaching".

"When the fear factor comes in, it can be very crippling for the inexperienced and faint hearted," she says.

"But if you don't overextend yourself financially, using your home equity can surely help you fast track your wealth creation goals."

This particular couple didn't lose out entirely: they ended up selling their own home and moving in with family members, and they're now building on their block of land with the cash leftover from the sale of their home.

But Williams warns borrowers to make sure they educate themselves fully before tapping into their equity, to make sure they follow the right steps and don't get caught out like her clients did.

Debbie Williams' tips for success:

1. Have a plan for your funds
2. Stick to the plan!
3. Have an exit strategy if the plan isn't working
4. Get help if you don't know what to do
5. Pay for the help you need, if necessary

 

Home equity not a cash cow

Unlike our U.S. neighbours who have much higher mortgage indebtedness, the average Canadian family with a mortgage has attained approximately 50 per cent equity value in their home. This fact encourages many of us, when refinancing, to add tens of thousands of dollars to our renewal mortgage — for renovations, a new vehicle, to pay off debts, or for travel.

The temptation is understandable. More than 20 per cent of families renewing mortgages succumb to this lure, unfortunately reducing their equity by adding to mortgage debt. Often this also adds to their amortization period. Is it the smart thing to do? Very rarely.

Assume you have 15 years left on your $200,000 mortgage. You decide to add $50,000 to it when renewing for a five-year fixed term at today's very attractive mortgage-broker rate of 3.65 per cent. You don't feel comfortable with the extra $361 monthly cost. But by extending your amortization period from the present 15 years to 20, your payments are virtually unchanged. Why should you not jump at this chance?

The reasons are several. You are committing to the incremental debt for 20 years. The interest rate however is assured only for five of those years. Even at 3.65 per cent over the full 20 years, you would be repaying a shocking $92,000 on the extra $50,000 that you borrowed. It's inevitable that rates will rise. Also inevitable will be the resulting increase in your monthly payments. Even at the low rates, do you really want to spend $92,000 of after-tax money to pay for a $50,000 renovation?

Compounding works hugely in our favour on investments. Unfortunately it has exactly the opposite effect with borrowed funds — even at relatively low rates, compound interest on debt always works against us.

You however, still want that $50,000 renovation. Is there a better way? Best and cheapest is always to first save the money, then do the renovation. If you can't wait and must borrow the funds, check out the interest cost on a home-secured line of credit. You'll likely find the rate to be attractive, with the added feature of monthly payment flexibility. With a little extra discipline you will be able to pay off the loan more quickly and cheaply than if embedded in a mortgage loan.

The smart Canadian will make every effort to pay off a mortgage as quickly as possible. Other than an emergency, when no other option exists, one should always resist adding to long-term mortgage debt.

Increasing a mortgage makes sense when necessity dictates upgrading one's home to accommodate a growing family. Usually as the family grows, so too does family income. This should keep the incremental payments affordable.

The cost is high when homeowners use their mortgage like a personal ATM. It is precisely that tendency which resulted in so many U.S. homeowners finding themselves in an unsustainable financial whirlpool. Some 10 per cent ended up in either default or foreclosure. Canada's foreclosure rate is about 0.4 per cent. Let's be prudent with our borrowing, and continue to keep our foreclosure rate very low.

EBay, F5 Networks, ITT, Home Depot, Lowe’s: U.S. Equity Movers

Jan. 20 (Bloomberg) -- Shares of the following companies had unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 4 p.m. in New York.

Homebuilder shares rose after the National Association of Realtors reported purchases of existing houses jumped 12 percent in December to a 5.28 million annual rate, the most since May and exceeding the highest estimate of economists surveyed by Bloomberg News. D.R. Horton Inc. (DHI US) rose 0.6 percent to $12.91. Pulte Group Inc. (PHM US) climbed 1.2 percent to $8.38.

Home Depot Inc. (HD US), the largest U.S. home-improvement retailer, gained 2.4 percent to $36.49, the biggest gain in the Dow Jones Industrial Average. Lowe's Cos. (LOW US) rose 3.7 percent to $25.30.

American International Group Inc. (AIG US) rose 1 percent to $43.18, the highest price this week. The insurer's SunAmerica Financial Group unit has "a lot of momentum," the Wall Street Journal reported, citing the unit's chief executive officer Jay Wintrob.

Dillard's Inc. (DDS US) rallied 12 percent to $41.96 for the biggest increase in the Russell 2000 Index. The Little Rock, Arkansas-based department store chain said it will form a subsidiary that will operate a real estate investment trust.

Other department stores also gained. The announcement by Dillard's "could force a reappraisal of the negative stance" toward the industry and put "significant attention" on the value of their retail real estate, Credit Suisse Group AG analyst M. Exstein wrote in a note to clients.

Sears Holdings Corp. (SHLD US) climbed 5.2 percent to $75.90, the highest price since Oct. 26. J.C. Penney Co. (JCP US) advanced 3.5 percent to $30.10. Macy's Inc. (M US) added 3 percent to $23.4.

EBay Inc. (EBAY US) rallied 5.8 percent to $30.77, the highest price since Nov. 26. The owner of the largest e-commerce market said sales in 2011 will be as high as $10.6 billion. Excluding stock-option costs and other expenses, profit will be $1.90 to $1.95 a share. Analysts in a Bloomberg survey projected, on average, revenue of $10.2 billion and earnings of $1.86 a share.

F5 Networks Inc. (FFIV US) tumbled 21.4 percent to $109.15 for the biggest retreat in the S&P 500. The maker of software to handle Internet traffic and content forecast second-quarter revenue of as little as $275 million, less than the average analyst forecast of $281.1 million.

Competitors also dropped. Blue Coat Systems Inc. (BCSI US) fell 6 percent to $28.41. Riverbed Technology Inc. (RVBD US) slid 4.1 percent to $35.44. Juniper Networks Inc. (JNPR US) declined 5.2 percent to $34.99. Salesforce.com Inc. (CRM US) erased 6.4 percent to $131.79.

Freeport-McMoRan Copper & Gold Inc. (FCX US) fell 4.3 percent to $110.90, the lowest price since Dec. 9. The world's largest publicly traded copper producer reduced its copper and gold sales forecasts for 2011 because of lower expected output from its Grasberg mine in Indonesia.

ITT Educational Services Inc. (ESI US) advanced 10.7 percent to $69.48, the highest price since Oct. 1. The operator of more than 125 for-profit college campuses said fourth-quarter net income climbed to $3.14 a share. That result beat the $3.09 average of 12 analysts' estimates compiled by Bloomberg.

MannKind Corp. (MNKD US) plunged 32.3 percent to $6.17 for the biggest loss in the Russell 2000 Index. The biotechnology company founded by billionaire inventor Alfred Mann, failed to win approval from U.S. regulators to market its first product, an inhaled insulin called Afrezza for diabetes.

Morgan Stanley (MS US) rose 4.6 percent to $29.02, the highest price since May 5. The bank advanced after reporting a 35 percent increase in fourth-quarter earnings on record revenue from its brokerage, the world's biggest. Revenue rose to $7.81 billion from $6.84 billion a year earlier. On average, analysts surveyed by Bloomberg estimated revenue of $7.32 billion.

Netflix Inc. (NFLX US) slid 3 percent to $185, the lowest price since Jan. 7. The DVD-rental and streaming company fell after Amazon.com Inc. agreed to buy the remaining shares of LoveFilm International Ltd., a U.K.-based DVD and online rental service.

Perrigo Co. (PRGO US) climbed 7.4 percent to $71.18, the highest price since it went public in Dec. 1991. The maker of over-the-counter drugs and infant formulas agreed to buy the assets of closely held Paddock Laboratories Inc. for $540 million in cash to expand in generic medicines.

Plexus Corp. (PLXS US) retreated 5.4 percent to $29, the lowest price since Dec. 20. The contract electronics manufacturer reduced its sales forecast, projecting growth of 13 percent at most in fiscal 2011.

Rackspace Hosting Inc. (RAX US) slipped 11 percent to $29.78, the lowest price since Dec. 2. The web-based IT system delivery company was cut to "neutral" from "overweight" at Piper Jaffray Cos.

Seagate Technology Plc (STX US) declined 5.8 percent to $13.31, the lowest price since Oct. 14. The world's largest maker of computer disk drives reported second-quarter profit that missed analysts' estimates as customers shunned machines based on its kind of memory, favoring rival technology.

SolarWinds Inc. (SWI US) fell 2.4 percent to $19.50, the lowest price since Dec. 31. The provider of network management software was cut to "hold" from "buy" at Noble Financial Group Inc.

Southwest Bancorp Inc. (OKSB US) rallied 11 percent to $13.64, the highest price since Aug. 5. The holding company for Stillwater National Bank & Trust Co. reported fourth-quarter earnings excluding some items that more than doubled the average analyst estimate, according to Bloomberg data.

Visa Inc. (V US) jumped 2.3 percent to $70.69, the highest price since Jan. 18. U.S. Representative Barney Frank, one of the authors of the financial regulatory overhaul, said he is ready to work with the Republican majority to force changes in a Federal Reserve proposal to cap debit-card "swipe" fees. The Fed's proposed limits could reduce annual revenue for U.S. banks by more than $12 billion.

VMware Inc. (VMW US) slid 3.8 percent to $89.31, the lowest price since Dec. 31. The biggest maker of programs that let computers run multiple operating systems was rated "neutral" in new coverage at Collins Stewart Plc. The 12-month price estimate is $92 a share.

Washington Post (WPO US) climbed 2.3 percent to $433.25, the highest price since Jan. 7, after billionaire Warren E. Buffett, chairman of Berkshire Hathaway, said he is retiring from its board after 37 years. Berkshire Hathaway is the largest shareholder.

Wendy's/Arby's Group Inc. (WEN US) climbed 6.9 percent to $4.78, the highest price since Dec. 14. The third-biggest U.S. hamburger chain plans to explore a possible sale of the Arby's brand. UBS AG will help in the process, the Atlanta-based company said today in a statement. The chain, known for its roast beef sandwiches, has almost 3,700 restaurants in the U.S.

--With assistance from Lu Wang and Rita Nazareth in New York. Editors: Niamh Ring, Stephen Kleege,

Affymax, Robbins & Myers, Supervalu, Verizon: U.S. Equity Movers

Shares of the following companies had unusual moves in U.S. trading. Stock symbols are in parentheses and prices are as of 4 p.m. in New York.

Affymax Inc. (AFFY US) climbed 15 percent, the most since Nov. 22, to $7.99. The biotechnology company developing an experimental anemia drug named its president, John Orwin, to succeed Arlene Morris as chief executive officer and board member effective Feb. 1.

AK Steel Holding Corp. (AKS US) fell 7.4 percent to $15.36 for the biggest loss in the Standard & Poor's 500 Index. The third-largest U.S. steelmaker was cut to "sell" from "neutral" by Goldman Sachs Group Inc.

U.S. Steel Corp. (X US) declined 4.9 percent to $56.14.

Ardea Biosciences Inc. (RDEA US) gained 9.9 percent to $28.66, the highest price since May 2002. The developer of cancer treatments said a study of its RDEA594 in combination with the current standard of care for the treatment of gout patients showed "positive" results.

Baker Hughes Inc. (BHI US) climbed 3.2 percent, the most since Nov. 18, to $56.60. The world's third-largest oilfield- services provider was lifted to "buy" from "neutral" at Goldman Sachs Group Inc.

Goldman Sachs also boosted Diamond Offshore Drilling Inc. (DO US), the largest U.S. deep-water oil driller, to "conviction buy" from "sell," and the stock climbed 4.9 percent to $70.57.

Bottomline Technologies Inc. (EPAY US) fell 3.9 percent, the most since Oct. 4, to $21.20. The maker of financial- management and payment software was cut to "neutral" from "buy" at D.A. Davidson & Co.

Dean Foods Co. (DF US) rallied 11 percent to $9.89, the most in the S&P 500. The biggest U.S. milk-products maker gained after Appaloosa Management LP, the hedge-fund firm founded by billionaire investor David Tepper, disclosed a 7.4 percent stake, making it the second-largest holder.

Dendreon Corp. (DNDN US) advanced 7.9 percent, the most since Aug. 4, to $38.20. The drugmaker reported 2010 revenue of $48 million from its prostate-cancer treatment Provenge and projected sales this year of $350 million to $400 million.

Goodyear Tire & Rubber Co. (GT US) gained 5.1 percent to $12.90 for the third-biggest advance in the S&P 500. The largest U.S. tiremaker was raised to "buy" from "hold" at Citigroup Inc.

Interpublic Group of Cos. (IPG US) advanced 4.7 percent to $11.11, the biggest gain since Oct 11. The New York-based advertising company was rated a new "buy" at Lazard Capital Markets.

Jones Group Inc. (JNY US) fell 7 percent, the most since Oct. 27, to $14.46. The New York-based maker of Nine West shoes was cut to "underweight" from "equal weight" by Morgan Stanley.

JPMorgan Chase & Co. (JPM US) sank 2.9 percent to $43.64 for the second biggest drop in the Dow Jones Industrial Average. The lender fell after US Bancorp (USB US) and Wells Fargo & Co. (WFC US) lost a foreclosure case in Massachusetts's highest court that will guide lower courts in that state and may influence others in clashes between bank practices and state real estate law.

Bank of America Corp. (BAC US) slumped 1.3 percent to $14.25. Wells Fargo declined 2 percent to $31.50. US Bancorp slipped 0.8 percent to $26.09.

KB Home (KBH US) rose 6.4 percent to $15.25, the highest price since May 19. The Los Angeles-based homebuilder that targets first-time buyers reported an unexpected fourth-quarter profit after cutting costs amid slumping demand for new houses.

Kulicke & Soffa Industries Inc. (KLIC US) advanced 13 percent to $8.66, the highest price since July 13. The maker of semiconductor assembly equipment was raised to "outperform" from "underperform" at Oppenheimer & Co.

Local.com Corp. (LOCM US) dropped the most in the Russell 2000 Index, tumbling 25 percent to $5.19. The Internet search engine that helps users find local businesses bought iTwango LLC and said fourth-quarter earnings missed its forecast.

Men's Wearhouse Inc. (MW US) rose 4.8 percent to $25.57, the highest price in a month. The retailer of men's suits and attire was raised to "overweight" from "equal-weight" at Johnson Rice & Co.

MGM Resorts International (MGM US) climbed 7.4 percent, the most since Nov. 3, to $16.35. Chief Executive Officer James Murren said the company's hotel room revenue, convention business and gaming revenue are "starting to come back" in an interview with CNBC.

Murphy Oil Corp. (MUR US) declined 4 percent, the most since Aug. 11, to $71.05. The oil producer and refiner said it failed to find hydrocarbons in two of three wells in the Mer Profond Sud permit in the Republic of the Congo. The Turquoise Marine #4 exploration well did find reservoirs with minor accumulation of oil. The total net cost of the program is estimated to be $36 million.

Perry Ellis International Inc. (PERY US) rallied 11 percent to $28.84, the highest price since September 2007. The Miami- based maker of apparel and fragrances agreed to buy Rafaella Apparel Group Inc. for at least $70 million. The acquisition will add 40 cents a share to earnings in the next fiscal year, the company said.

Robbins & Myers Inc. (RBN US) gained 16 percent, the most since June 2008, to $41.18. The maker of fluid management systems forecast second-quarter profit excluding some items of at least 40 cents a share, beating the 35-cent average estimate from analysts in a Bloomberg survey.

Supervalu Inc. (SVU US) had the second-biggest decline in the S&P 500, sliding 5.9 percent to $8.66. The Eden Prairie, Minnesota-based grocer said Steve Jungmann, executive vice President of merchandising, will leave the company. His role will be taken by Janel Haugarth, executive vice president, president and chief operating officer of the company's Supply Chain Services organization.

Travelers Cos. (TRV US) dropped 2 percent to $53.33, the biggest slide in the Dow average. American International Group Inc. agreed to pay $450 million to the company and six other rivals for shortchanging industry-funded pools that insure injured workers.

Warnaco Group Inc. (WRC US) slumped 4.3 percent, the most since Nov. 10, to $50.40. The owner of swimsuit maker Speedo was cut to "underweight" from "equal-weight" at Morgan Stanley.

Xyratex Ltd. (XRTX US) slumped 14 percent, the most since Sept. 30, to $14.78. The provider of data storage and network technology reported fourth-quarter earnings and sales that trailed analysts' estimates.

The Great Debate(c): Will Housing be a Drag on the Economy in 2011?

This article has two parts. The first is an analysis of a terribly misleading position presented by Mark Perry and Alan Reynolds. A position has been taken by Reynolds and basically endorsed by Perry. The second part of the article is a presentation of data that has either been ignored by Reynolds or dismissed as irrelevant. The first part is the refutation of the opposition's arguments; the second part is the presentation of the author's arguments. Thus another Great Debate© is joined.

Part 1.  The Defective Alan Reynolds Argument

Prof. Mark Perry (Carpe Diem) and Alan Reynolds (Investor's Business Daily) have both argued that falling home prices do not represent a threat to the economy in 2011 because the falling prices will be localized and not represent the whole country. Reynolds wrote:

A dip in the Case-Shiller moving average of home prices in 20 cities for August to October is said to be "troublesome headwind" for the economy in 2011, and "markets such as Sacramento, Las Vegas and parts of Arizona and Florida are at risk of more declines."

Some of those cities may indeed account for a significant share of the Case-Shiller index, because that index covers only 20 cities (and Sacramento, the centerpiece of the story, is not one of them). However, a few troubled cities in a few states do not represent the entire nation.

And he went on to say:

Peter B. Schiff prophesizes that home prices all over the country will fall by somewhere between 24.32% and 28.3% over the next five years.

He imagines home prices must magically revert to some "3.35% annual 100-year trend line," even though no prices of any assets or goods have ever followed such a century-long "trend." This is utter nonsense.

And still further on in the Reynolds discourse:

Falling home prices ultimately help the homebuilding industry because lower prices increase home sales and shrink the excess inventory of existing homes. The stock of existing homes fell to 9.5 months of supply in November from 12.5 months in July. That, not "stalling" prices, is the housing recovery that matters.

There are several problems with Reynolds' logic. Here are a few points where he is talking nonsense:

1.  Reynolds starts out talking about headwinds for "2011" and then magically segues to "ultimately." Ultimately he is correct. In 2011 he is wrong.

2. He talks about months of inventory of existing homes falling from12.5 months in July to 9.5 months in November. As can be the case, a cherry-picked tidbit of data can be misleading. The following table shows the actually existing home inventory counts for July and November for the past three years.

Three observations:

• Existing home inventories have declined from July to November each year.
• Inventories are larger this November than last.
• The sales rate in July was the lowest on record due to the end of the last tax credit program. (Not shown in table.) This created an artificially larger months of inventory for July.
  

3.  No prices have ever followed a 100-year trend line? Tsk! Tsk!  Never say never. The "magical" 3.35% annual slope Peter Schiff quoted for home prices can be compared to the long-term trend lines for such things as:

• Real disposable income per capita (2.4% annually, 1959-2010);
• Industrial Production growth (3.3% annually 1919-2010);
• Real GDP growth (3.3% annually 1929-2009);
• CPI (3.4% annually 1913-2010).

The fact that the items cited above have slowed below their long-term trends in recent decades do prove that such trends see deviations of data in some time periods. But it is certainly not unreasonable to expect some degree of central tendency and I would argue that Peter Schiff is very being very reasonable when he uses the 100-year trend line as a reference.

And if considering trends, Reynold's and company are ignoring a trend reversal in existing home inventory when comparing November data YoY. The following existing home inventory graph posted by CalculatedRisk has been marked up to show the reversal in the trend lines by connecting November data YoY.

This trend reversal began before the ending of the government's stimulus involvement in the housing market.

4.  Reynolds makes no mention of the supply overhang. Maybe it's not necessary to mention it because if housing is recovering (as Reynolds implies but is refuted in #2. above) the several million homes in various stages of delinquency, default and foreclosure but not yet on the market will suddenly disappear from the so-called shadow inventory. Of course, ignoring this overhang burden is more nonsense.

5.   Reynolds goes to great pains to point out that home value is not as significant a percentage of personal wealth as others have claimed. Here is what he wrote (reference is to a Wall Street Journal article):

The most persistently incorrect argument about the alleged dangers of letting overpriced homes fall to an affordable level is that falling home prices supposedly have a devastating effect on household wealth.

"Homes remain a key part of Americans' wealth," says the Journal article. "Households held $6.4 trillion of home equity at the end of the third quarter, alongside $12.2 trillion in stocks and mutual fund shares. … For every dollar decline in housing wealth, consumers reduce spending by about a nickel in the subsequent 18 months, Moody's Economy.com chief economist Mark Zandi estimates."

The table alongside shows that the $6.4 trillion of home equity in the third quarter was only 11.9% of estimated household wealth, which was $54.9 trillion. The Journal's reference to "$12.2 trillion in stocks and mutual fund shares" leaves out retirement accounts, bonds, rental property, farmland, precious metals and family-owned businesses, among other things.

Reynolds is imply ignoring the fact that home equity is a disproportionately large part of net worth for those that are not wealthy. Here are the numbers from 2007:

• The bottom 80% of the population has 15.0% of the total net worth.
• The bottom 80% of the population has 7.0% of the total financial wealth.

The major part of that difference (between total net worth and financial assets) is very likely largely home equity. That implies that, for 80% of the population, loss of home equity value is has much more impact on wealth than for the top 20%. The 11.9% for home equity by Reynolds is certainly smaller than that for the top 20% and much larger than that for the bottom 80%.

Mr. Reynolds should stop writing for the wealthy and try writing for everyone.

6.   Reynolds writes another circuitous beauty which goes nowhere:

Housing wealth has no more impact on consumer spending than any other sort of wealth. In fact, the $6 trillion increase in overall household wealth since early 2009 was nearly as large as total home equity. The five-year decline in home equity is partly because homeowners took out larger mortgages to cash out equity while home prices were rising.

What pray tell does this mean? He can't mean to imply the home equity withdrawals simply transferred money from one wealth pocket (home equity) to another asset? It is widely accepted that much of the home equity withdrawals were used to finance consumption. That money has nothing to do with the increase in household wealth since 2009.

And to say housing wealth has no more impact on consumer spending than any other kind of wealth may actually be true today, but it certainly was not true for much of the past decade.

Reynolds could have damaged his arguments less had he simply left out this gratuitous fluff.

This concludes my review of the Reynolds' arguments.