In housing and automobiles, affordability is determined by monthly payments, including taxes and insurance.
As higher rates dampen demand for homes and cars, the effects spread to the rest of the economy. More important than housing's direct affect on the economy is the fallout from the slowdown in home-price appreciation. This is where the economy will be most vulnerable. The easy availability of refinancings and home-equity loans have allowed consumers to tap into the equity built up in their homes. The Federal Reserve found that the average household extracted $26,700 in equity with each refinancing. Now the refinancing windfall is going away.
You Get What You Tolerate
In medicine, you look at how "well tolerated" a drug will be related to its side effects. At work and at home, many people evaluate new opportunities related to what can be well tolerated. In consumer spending, the key question is: How well can our budget tolerate the monthly payment for a new automobile or new house?
Yet, at the end of life, most people don't want their tombstone to read, "He tolerated stuff for other people because they paid him." Especially, when we realize that we can make more money and have more fun doing work that engages our passions. Life is too short for being tied down to high monthly payments for homes, cars and other purchases...or...doing work you don't enjoy for people you don't respect.
For more on consumer spending and the bursting of the real estate bubble, click here.
John G. Agno, certified executive & business coach www.MentoringandCoaching.com