House ATM and Prices

I often wonder about the price level of certain goods that are closely tangled up with home equity, or rather, the ability to extract home equity.

I haven’t seen any statistics on this yet, but from all of the news about the housing bubble, it appears that a large portion of homeowners refinanced their houses to extract equity for purchases.  GDP and employment numbers were skewed by this equity extraction, and I believe that there are quite a few goods and services that have also been skewed, but there is no easy way to measure this.

Here’s a list of goods and services that may have inflated prices because of historic equity withdrawals.  These things are likely overpriced right now, and we might see them come down in price over the next few years.

• College tuition.  Since this is something that parents would be paying for, it seems logical that home equity would be an inflator of tuition prices.  Money is fungible, so even if they weren’t directly extracting equity to pay for college, the existence of the equity funded another purchase that wouldn’t have occurred if the money had been reserved for tuition.
• Major construction/remodeling projects.  It’s easy to extract equity to add on to your house if all the contractors and real estate actors tell you that you’ll get the value back and then some.  Smaller projects, like replacing a roof or a bathroom remodel, are probably included here, too.
• Mid to upper level cars.  I can’t think of a worse idea than extracting equity from a house and buying a BMW, but I’m sure it happened, and it helped to justify a premium on the price of luxury and mid-level cars.
• Vacation packages like Disney, Carnival cruise, etc.  Imagine if you had to pay real money for these!  I bet they’d cost less.  It’s probably not hard to tack an extra 5 grand onto your equity extraction refinance so that you can take the kiddies to Disney World.
• Down payments for houses in the lower end.  I would guess that parents that provided down payment assistance for their children used the house ATM for some of that money.
• Large Screen TVs.
• Home-Gym equipment.
• Basically any luxury item that costs 1000 or more.