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Bystander said:Depends. If homes are purchased with cash and the market falls as a function of insurance companies' policies, yes. If homes are purchased with lenders' money, no --- that was never "real" money. The banks show smaller profits for defaulted mortgages (actually larger given tax write-offs and other creative bookkeeping tricks).
True, however, many people today rely on the equity in their home to acquire additional wealth. This ends up as real cash in the economy.