by Calculated Risk on 1/30/2006 02:04:00 PM

The LA Times reports: Sales of Pleasure Boats Buoyed by Soaring Home Values

California's hot real estate market has helped power a rise in boat sales by allowing people to borrow against the soaring value of their homes to buy boats and other big-ticket items.

In California, retail sales of recreational boats — from runabouts to $4-million luxury yachts — rose about 8% last year to a record $540 million, continuing a growth trend over the last five years, according to the Southern California Marine Assn. A similar increase is expected in 2006.

Though some economists worry that too many people are overextending themselves, the boating industry considers itself lucky that business is humming despite high gasoline prices.

"A lot of people are taking money out of their homes and buying different things, and one of them — fortunately — is boats," said Dave Geoffroy, executive director of the marine association, the organizer of the L.A. Boat Show.

A couple of comments: I guess a 30 year loan on a pleasure boat is better financial planning than a 30 year loan for a hamburger!

But what happens when mortgage equity withdrawal slows?

... some dealers worry that boat sales could fall if real estate values drop, which happened in the early 1990s.

"I'm moderately concerned," said Michael Basso Jr., general manager of Sun Country Marine, which sells family boats and has locations in Castaic, Dana Point and Ontario.

He noted that half his buyers last year paid in cash, often from money they pulled out of their homes.

I wonder if the slowdown in Q4 (1.1% annualized growth in GDP) was related to a slowdown in equity extraction? The Federal Reserve's Flow of Funds report (due March 9th) will help answer that question.