Housing Market Slowdown

As the Dow hits a historic record high I wanted to examine all this talk about the housing market. The common theme (always be weary of common themes) is that this consumer led economy is based on equity from appreciating real estate prices. Resetting ARM's and higher interest rates would kill the consumer and hence the economy. So what happened?

Interesting research from Citigroup regarding this phenomenon. In 1995, home sales actually fell 15.6%, more so then the current rate of 13.2% in August. The first graph shows real consumer spending, real income, and a projected spending based on the level of mortgage equity withdrawals. This discrepencacy basically is saying that consumer spending SHOULD be much higher if mortgage equity was driving spending.

[More on this later]