The Housing ATM

Again from the WP [but credit Bill Fleckenstein with coining the phrase 'Housing ATM']

For years, as the bull market in housing gathered steam, people used their homes as glorified ATMs, pulling out money for all sorts of reasons. The trend helped support continued economic growth and recovery from the 2001 recession. But now people are reining in their spending, raising concern that their collective decisions could nudge a sluggish U.S. economy into recession...

Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005 -- more than triple the rate in the previous decade -- according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy. That's the "free cash," as the authors call it, left over after closing costs and other fees deducted from equity withdrawals. Most of the money extracted during those boom years, nearly two-thirds, came from home sales, the authors found.

Another 21 percent came from home equity lines of credit, while 15 percent came from mortgage refinancings. About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.

The amount of free cash extracted has fallen sharply since the peak in 2005, to $217 billion in the last three months of 2006, down by almost half from a peak of nearly $400 billion in the third quarter of 2005. Analysts disagree about whether these changes will affect consumer spending.

Analysts disagree about whether these changes will affect consumer spending???? It seems not unreasonable to think that a drop of 50% in "free cash" available to spend on plasma TVs, stocks and third homes might somehow possibly maybe put at least a slight damper on consumption.