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Consumer grows increasingly levered

Wednesday, February 08, 2006 | 08:45 AM

We've addressed this issue previously, but Doug Kass summed up the specifics perfectly:

The facts are indisputable - the consumer has grown increasingly levered just when interest rates are rising and the large amount of mortgages based on teaser rates are about to be reset.

The facts speak for themselves:

• Non-discretionary consumer spending (for items like food, energy, medical expenses and interest payments) which vacillated in the 44% to 47% range until 2000 has now risen to 54%.

• Household debt/household assets is at an all-time record high (up from 14% six years ago to nearly 19% today).

• Despite the outsized gains in the value of the housing stock, the magnitude of the cash outs have resulted in an historic low in the ratio of home equity/home market value.

This ratio stood at 57% in 2006 compared to a peak of 70% twenty years ago.

• Household debt/GDP has never been higher. It is now at 88% compared to only 63% after the recession of the early 1990s.

• Mortgage debt/GDP has doubled over the last twenty years (63% versus 31%).

As we discussed yesterday in the post on the BusinessWeek Cover Story, most people instinctively understand their own financial situations.

All is not well on the home front . . .

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Barry Ritholtz:The facts are indisputable - the consumer has grown increasingly levered just when interest rates are rising and the large amount of mortgages based on teaser rates are about to be reset. The facts speak for themselves:Non-discretionary ... [Read More]

Tracked on Feb 8, 2006 10:28:29 AM