Ruth Lee
CNN Money: “Pending home sales ‘fell off a cliff’”
The tax credit expired yesterday. Thousands of new homeowners were able to meet much stricter lending guidelines due to the government’s subsidization of their required “skin in the game.” Whether this has expanded the moral hazard evident in 100% LTV financing is not yet clear. What is clear is that the American economy is resilient enough to respond to a deal, a bargain or a “giveaway,” but not resilient enough to spend without it. In much the same way that car sales plummeted after the “cash for clunkers” giveaway expired, I don’t think it is shocking to see home sales follow the same path. Americans have exhibited much higher savings rates over the last year – realizing that a world of unlimited, cheap credit is gone…eternal equity and housing appreciation has disappeared… and that the consequences of abusing or luxuriating in a life above your means can set you and your family up for a hard and painful fall.
