Peter Schiff on the Kitco site tackles some myths about home equity. "Yesterday on CNBC my bullish opponent in a debate rebutted my argument that Americans saved too little by claiming that the methodology used to calculate savings was flawed as it omits the accumulation of home equity. This foolish argument, which amounts to nothing more than Wall Street’s attempt to rationalize away a chronic problem, reveals a complete lack of understanding of the concept of savings, and the important role that savings plays in a free market economy."
"Savings represent foregone consumption deferred to a future date. It amounts to a personal sacrifice, the deliberate postponement of immediate gratification. The saver makes his savings available to finance capital investment, which ultimately leads to increased productivity and rising standards of living."
"While it is true that home equity may be an asset to an individual homeowner, its existence in no way adds to society‘s stock of savings. Home equity does not require the homeowner to forgo anything [This is obvious for the case of appreciation, I'll have to think about it for the case of simply paying the principal on the mortgage: Let's see, the house was bought by borrowing someone else's savings, savings that could have financed the creation of productive assets, which a house is not. So merely paying back those savings simply gets everyone back to zero. The homeowner forewent nothing when he was handed the windfall of a boatload of cash to buy the house, and his payments simply neutralize the windfall. The original building of the house did add to society's wealth; a useful house exists now where none did before . Its changing hands adds precisely nothing.--Matteo] Nor does it free up any resources to finance capital formation. In fact, the only way a homeowner can tap his equity is by accessing someone else’s savings. Not only does home equity not represent savings, its existence actually represents a potential claim on society’s legitimate supply of savings. To the extent that it is used to finance consumption, it actually crowds out savings which might otherwise have been used to finance capital formation."