It is good news that subprime lenders won’t lend to the unqualified. It is good news that lenders and borrowers alike won’t be tempted to allow people to buy homes way above their means to sustain that home. It is good in the long run that the pendelum will eventually get back somewhere in the middle on lending criteria. 

In the last few years America actually had a -2% savings rate. Today we are back in positive territory. See the chart below. How did we get to that unhealthy point?

Savings back in positive territory

The most likely cause for the decrease in saving over the last several years was the multiyear increase to home values as well as the stock markets. As people’s net worth (at least on paper) grew people “felt” wealthier and became unconcerned about saving outside of retirement. We now see how quickly one’s “net worth” can change and the home equity ATM would shut down.

According to data from the Federal Reserve and the US Bureau of Economic Analysis economic boom times that result in greater net worth  are usually accompanied by saving rate declines. The opposite holds true too. When home values and the economy stagnate or drop  personal saving usually increases as it has recently. 

So let’s learn from history. Let’s not trust in our net worth on paper. The stock market and housing values WILL go up. Today’s news reports both “Housing prices in 20 major cities fell at record monthly and annual levels in January, according to a private report issued Tuesday, with prices down 2.8% from December and 19% from a year earlier.” and “The National Association of Realtors said that existing home sales rose last month to a seasonally adjusted annual rate of 4.72 million million units, up 5.1% from a rate of 4.49 million in January.” The bad news is prices are down but the good news is sales are up. When there is less inventory the prices will rise again. When this happens is beyond our control. 

But what is well within our control is the wisdom to follow a consistent and proactive saving and investing plan to build wealth.

“Those who do not learn from history are doomed to repeat it”