John Ryding, chief U.S. economist at Bear Stearns, told CNBC’s “Squawk Box” that he believes many analysts have overstated the effect of declining home prices on consumer spending.
“Wealth is still rising,” Ryding said. “It’s not just homeowners’ wealth -– it’s equity market wealth. Consumer wealth levels in the fourth quarter of last year set a record high in real dollar terms. So, I think the impact (of falling housing prices) on spending has been somewhat overblown.”
He said income growth is the key factor in consumer spending and incomes continue to rise. Tapping home equity is a “financing vehicle” for consumer spending, but doesn’t determine it.
“Last year, equity extraction –- taking money out of your home –- fell $240 billion, but consumer spending picked up,” Ryding said. “So, clearly, there’s not a very strong link.”
But Thomas Lawler, founder of Lawler Economic and Housing consulting, took a more downbeat view of consumer spending in a sagging housing market.
“Consumer spending has outpaced income for quite a bit, and at the same time home prices have outstripped income,” Lawler said. “There’s absolutely a relationship. Home prices, which nationally started to fall in the second half of last year and are almost certain to decline this year, are going to curtail consumer spending –- no doubt about it.”