How would the decline of the value of people's homes cause them to slow down their spending?

Question

I dont understand this concept. Please explain easily this to me. If they are not selling their home or taking out a loan using their house as collateral right away, why would something written on paper as to the value of their home cause them to have less cash to spend.

ALSO DO YOU THINK THIS WILL HAPPEN THIS YEAR?
A SLOW DOWN IN CONSUMER SPENDING BECAUSE OF THIS?

HOW ?? WHY??

Answer 1

They can borrow less because their house is worth less. The house is used as security.

Answer 2

One way I would think of it is. If the price of properties dropped dramatically and ur property is mortgaged, and the value of ur property has dropped far less than u origionally paid for it, then that would make me cut my spending dramatically and save as much as possible so that if I had to move then I would have some savings to fall back on to make up any shortfall on new home, but remember one thing, if my house goes down so do others but it depends on ur area as to how much ur property devalues.

Another reason for slowing down on spending or cutting back is if u have no extra cash in ur property as ur house price has gone lower than what u paid for it , then u have no extra collattroll on ur property to take a remortgage on as no companie will give u a remortgage unless there is money still in ur property.

Sorry, I am disabled I have had a hell of a week, what with a death in the family, me being unwell and now my back has gone and I have been in severe pain since last Monday, my mind has gone blank, I cannot remember the proper words in this dept and i am a home owner myself

Answer 3

A raising of interest rates increases the amount you pay on your biggest expense. your house. That puts less money in the consumers pocket and decreases inflation at the same time the knock on effect is that people wont jump into house purchased as readily causing a down turn of property prices as there becomes more sellers than buyers, Its a balancing act that every government has to deal with. some do better than others.

Answer 4

People's homes are the primary source of wealth in the US. Most americans (somewhere around 65%) own their own home, and the capital appreciation in the home (their equity) is their primary form of savings.
one reason why a declinee in home prices can cause a slowdown in spending is purely psycological. people feel poorer as their equity declines, so they stop spending. A secondd reason is that equity can be tied to credit. Home owners can re-finance their homes, in effect taking equity out of their home (so mortgage goes up, but the owner takes a chunk of the appreciation out that he can spend as he wants). A lot of owners do just that, taking out money and using it for home improvement and other projects. So when home values decline, there is less equity, and hence less ability for homeowners to take equity out of ther hmes to spend. this in turn slows down comsumer spending. A final reason for the link between equity in a home and spending has to do with lines of credit. A bank will give a homeowner a loan, typically on a variable rate of interest, secured with the equity in the home. When equity declines, banks will offer lower lines of credit because it increases a banks risk to give large loans on low equity. What this does is shrink a homeowners borrowing ability (credit), and therefore means a home owner cannot spend as much on projects, home improvement, etc.
this non-coincidently is why Home Depo had its profits fall in the last few months, people lost their ability to finance home improvement projects and reducedd their spending.

Answer 5

How would the decline of the value of people's homes cause them to slow down their spending?

-Well the way I see it, it's when you sell your home, you won't get as much money for it, so when you buy another house that isn't any cheaper, you have less money to spend because you aren't as rich.

Answer 6

People tend to save more rather than spend when they realise that the value of their homes is declining.