Fueling Las Vegas

I came across this great post over at Calculated Risk that shows charts of how much money was taken out against homeowners equity when people refinanced their homes during the real estate bubble. The original blog post details how little has been taken out in the past two quarters with a reference to homes being called ATM machines and how the ATM machines have run dry. Which… has resulted in dire straights for the global economy since so many businesses and countries rely on the United States to consume, consume, consume.

The Chart below shows just how much real estate was being used as ATM machines on a quarterly basis. 

Quarterly Mortgage Equity Withdrawal in Billions

You can obviously see the steady patterns pre- 1999 of around $20 Billion a quarter that was taken out against Homeowners equity.

Refinance, take out the cash and pay the credit card bills, kids education, wedding, family vacation…whatever.

And then… it starts to double in 2001 to $40 Billion.  By the time we hit the peak of real estate values, the equity withdrawal is at or over $120 Billion in a Quarter.

Where did All of this Money Go?

New Pools, SUV’s, Exotic vacations, Imported goods, Pay off the Credit Cards, etc.. etc.. etc… It was quite a bit of money that circulated around and fueled the economy.

In past posts and my interview with a reporter from Bloomberg over a year ago,  I mentioned how the economy of the past several years was fueled by this very same effect. Home values skyrocketed due to sub-prime lending and lax lending standards, people refinanced and took that cash from the equity created and then spread the wealth throughout the economy. Starbucks, Luxury Cars, SUV’s… you name it… everything that boomed during this same time frame… including Las Vegas.

When you think about everything that was built in Las Vegas during this time frame and how well it was doing… and how poor some of these same resorts are doing today…it all certainly makes sense.

Saving money during this time frame? Forget it… The President and Congress said go out and spend it. And so we did… along with our cities, counties, states and nation. The global economy boomed along with our local economies and Las Vegas certainly was a benefactor.

So while the powers to be continue to come up with plan after plan with borrowed money and/or printing money… remember the chart and it explains what took place to begin with and what is currently taking place.

We are in a correction after several years of spending money that really was never there… it was borrowed money… nothing more and nothing less. Creating programs with borrowed and/or printing money to artificially inflate the flow of  money in the economy are only going to create problems for another day…. 

The simple chart says it all…

As always… use the information below to contact me or click on the link below for our Las Vegas real estate website for information on Las Vegas short sales, Las Vegas foreclosures for sale and our Featured Las Vegas Homes for sale.

Paul Francis, CRS
Las Vegas Real Estate
702.592.3058