From Wolf Richter at wolfstreet.com:
Clearly, American consumers failed to do their job of propping up GDP in the fourth quarter.
GDP was crummy, with its snail-like growth rate of 0.7%, hammered by energy, exports, production, and inventories that are coming out of everyone’s ears and that businesses are finally whittling down. Even auto production has suddenly softened though it had been booming for years. And spending by businesses, which are caught up in a wave of cost-cutting and financial engineering, was dismal.
So the powerful force that was supposed to have propped up GDP was consumer spending, which accounts for 70% of it. Economists were in total agreement that consumers had “every reason to spend,” with the official unemployment rate being so low and credit so easy. But consumers just didn’t go along with the program enthusiastically enough. The warm weather got blamed.
But there’s hope.
Even while businesses are cutting back and slashing expenses, consumers are rediscovering in massive numbers the miraculous concept of using their homes as ATMs.
The housing market in many cities has by now transcended the crazy peak levels of the prior housing bubble, the one that everyone called “bubble” only after it had imploded, while denying its existence throughout its life.
And consumers are once again using these soaring home prices, ephemeral as they may be, as miraculous ATMs that just keep on giving.
So Equifax reported today that the number of first mortgage originations in the January through October period soared 37% year-over-year to 6.64 million mortgages, and that the total balance of these first mortgages skyrocketed by 51%.
$1.56 trillion of first mortgages were originated in the period, the result of a booming number of mortgages combined with rampant home-price inflation. Note, these are just first mortgages and do not include refis.
To continue reading: The Home as Miracle Subprime ATM Resurges
