In 2005, the peak of the nation’s housing market, Americans pulled out $1 trillion from their homes through refinancing, profits on sales, and borrowing from their equity, said Mark Zandi of Moody’s in an LA Times story today.

But now:

The annual rate through the first quarter of this year, he said, “has fallen very sharply, to less than $500 billion, and that’s going to weaken further as home prices continue to fall.”

The economy is starting to see the opposite of what was known as the “wealth effect” — the ramped-up consumer spending on big-ticket items stemming from homeowners withdrawing equity from their homes. And the auto industry is among the first to feel it, the Times reported.

Another economist interviewed, Bob Schnorbus of Michigan-based J.D. Power and Associaties, estimated that 10 percent of the equity withdrawn from homes in HELOCs (home-equity lines of credit) went straight into the car market.

And about 14 percent of auto sales are cash sales, which usually indicates home equity funds. Schnorbus expects that as shoppers have less equity cash to use, those who can still afford a new car will be more inclined to purchase the smaller, less expensive cars and trucks that deliver smaller profits to dealers and automakers.


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