Consumers still see value in buying and owning homes. Yet with memories of the recession still fresh in their minds, the recent lift in real estate prices hasn't been enough to persuade them to spend against that growing value.
In a keynote speech at the National Retail Federation's annual conference in New York on Tuesday, William Dudley, president of the Federal Reserve Bank of New York, said this consumer hesitancy is one reason retail sales have been held back.
"People haven't actually tapped that housing wealth," Dudley said, noting that home values have increased 40 percent since 2012.
Dudley's comments follow what was, on the surface, a solid holiday season. According to the National Retail Federation, retail sales rose 4 percent in November and December, outpacing the prior 10-year average of 2.5 percent growth.
But spending was choppy, and many traditional retailers struggled to capitalize on those gains. Along with a reluctance to spend money backed by the future value of their homes, a shift toward spending on experiences, a desire for deep discounts and an increased penchant for the web weighed on retailers.
Looking forward, Dudley is unsure whether the recent gains in consumer confidence, which hit a 15-year high last month, will translate into elevated levels of spending. However, as the recession moves further into the rearview mirror, he predicts housing equity will once again become a source of consumer spending.
"As time passes, people will forget the financial crisis," Dudley said.
He added that it's very unlikely there will be another financial crisis in the next five to 10 years, thanks to healthier balance sheets and a safer financial system.
Still, while he didn't rule out the possibility of 4 percent growth in gross domestic product going forward, he said it would be a "very, very good outcome" that would rely on lifting productivity. The economy has been expanding at roughly a 2 percent rate, though President-elect Donald Trump has said he thinks the U.S. could generate double that rate of growth.
Dudley also spoke about the potential for a border adjustment tax, a Republican-backed plan that would make it more expensive for retailers to import goods to the U.S. While Dudley acknowledged that the country's corporate tax system needs an overhaul, he said a border adjustment tax would be a "pretty dramatic change."
Proponents of this type of tax argue that its implementation would increase the value of the dollar, and therefore counter the costs retailers would incur by importing goods. But Dudley was skeptical that the transition would happen smoothly.
"I can't sign up for that proposition," he said, adding that a border adjustment tax could also have unintended consequences. They include fewer international tourists coming to the U.S., and more Americans taking advantage of a stronger dollar by traveling abroad.
Trump recently told The Wall Street Journal that the border adjustment tax is "too complicated," casting some doubt as to whether it would be implemented. In a subsequent statement, the press secretary for Speaker of the House Paul Ryan said that Ryan is in "frequent communication with the president-elect and his team about reforming our tax code to save American jobs and keep the promises we've made."
"Changing the way we tax imports and exports is a big part of that, and we're very confident we'll get it done," he said.
The National Retail Federation has taken an official stance against a border adjustment tax. On Monday, NRF CEO Matt Shay said its implementation would be a "massive" cost for retailers that could be "disastrous."