Historically, consumer credit has roughly tracked overall changes in house prices. In other words, the consumers’ ability to borrow — and then go out and spend — has been highly correlated to real estate changes (and hence, the importance of interest rates).
In the attached chart, courtesy of Michael Panzner at Rabo Securities, the year-on-year changes in the U.S. Office of Federal Housing Enterprise Oversight’s quarterly house price index is overlayed on a graph of consumer credit outstanding as a percentage of nominal GDP.
In a healthy environment, you see real (after inflation) wages rise, and consumer spending going higher along with that.
In a stimulus-driven environment like we’ve enjoyed for the past three years, instead of real wage growth, there’s been a lot of consumer borrowing propelling their spending. I expect as the borrowing slows down, so too will the consumer spending.
I don’t see how to put a positive spin on that.
click for larger graph
Source: Mike Panzner, Rabo Securities
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