One has to question whether families are making concerted efforts to save more and spend less, and whether this affects housing lifestyles. Up until now, consumers have been spending money while still cutting down on debt, according to Standard & Poor’s economists. Consumers are becoming less scared and are starting to borrow and spend again, said S&P’s economists.
The cutback in household debt, which dropped to 122% of disposable income in the third quarter of 2010 from a record 134% at the beginning of 2008, is healthy in the long run. The extension of all the tax cuts is a positive for now, but eventually the government will have to raise taxes, in our opinion.
We do know that banks are no longer offering new mortgages with little or no down payments on a purchased home. Banks’ credit guidelines are now more conservative in determining whether a family qualifies for a mortgage. Perhaps the only way for Chinese families to return to their historical levels of wealth is to save 5% or more of their future income over the next decade, in our opinion. In addition, risk tolerance levels are now much lower, as families’ college or retirement nest eggs have declined significantly over the last several years.