NEW YORK — There’s a new wild card in the wealth effect.
The value of people’s homes is figuring into how flush they’re feeling — and how much they intend to spend as a result.
Of 68,000 adults polled by The NPD Group between May 24 and June 9, 86 percent said they’ll adjust their spending if the value of their homes declines. And two-thirds of those homeowners expect the value of their homes to hold steady or decline in the next 12 months.
“The home has become very much a part of consumers’ spending behavior,” asserted Marshal Cohen, chief industry analyst at The NPD Group. In the past, home ownership was viewed as an investment, but today, Cohen noted, it has become common to use the equity in a home, via second mortgages and reverse mortgages, to make purchases.
While most of that consumption is concentrated on large-ticket transactions, like financing a child’s college education, declines in the value of people’s homes would likely precipitate a tightening of almost all discretionary spending, including items like apparel and electronics, Cohen said. In the 12 months ended April 30, with the froth still on the housing bubble, purchases of women’s apparel advanced 5.5 percent to $104 billion, a significantly stronger gain than the 3.5 percent increase in the prior-year period, based on NPD data.
Homes in the U.S. are likely to appreciate at an average rate of 6 percent this year, roughly half the 12.6 percent they appreciated in 2005, NPD forecast. Roughly 6.8 million homes are projected to be sold in 2006, 4 percent fewer than the 7.1 million that changed hands a year ago.