How the credit crisis will affect everyone

money house
From the gifted pen of Jim Kuntsler

Sooner or later, though, millions of shlubs dependent on pension checks, or annuities, or monthly payouts of one kind or another will notice that something has stopped landing in the mail box. Re-po men with bad haircuts and tattoos will be driving other peoples’ cars to the auction barn. Young people accustomed to thrilling paydays will discover that their services are no longer required in the mortgage origination business, and will instead have to memorize dozens of excruciating formulas for different sorts of beverages more or less based on coffee. Millions of realtors will enter second childhoods as they move back in with Mommy and Daddy, who themselves must now change their plans, since it is no longer possible to flip the 1956-vintage raised-ranch in Hempstead to buy that half-million condo in Maui.

On a more working class scale, this means layoffs will happen at huge nationwide chains like Home Depot, Target, and Wal-Mart. The businesses that serviceand supply them will suffer too. Those that have homes may lose them, or go deeply into credit card debt at usurious rates trying to keep the bills paid.

The Home Equity Line of Credit money spigot no longer exists and commercial credit is getting considerably more expensive. All that cheap money that has been floating around has vaporized.

Just within the past month in the well-off Connecticut town we live in, many more homes are for sale. I wonder, are some of these due to adjustable rate mortgages resetting to much higher levels? The real estate bubble here was modest, certainly not like Los Angeles, where we moved from in Feb. But is seems odd that so many homes here are suddenly for sale.

So imagine what it must be like in a Detroit, where property values are already plunging and the median price is something like $75,000. Where will they be in a year?

  • DJ

    When I drove through Pahrump, NV a couple of months ago, about half the properties I saw were for sale. I’m betting on speculators. There were an unusual number of for sale signs on my recent trip to New Hampshire, too, and I doubt that’s entirely speculators.

    Here in southern Utah it’s a mixture of speculators, developers who got caught with inventory, and primary homeowners who need or want to sell. The developers are typically local companies, not national corporations, and some of them are really hurting because they financed the homes they built with construction loans and have to continue paying interest until they sell. A client of mine has everything he owns up for sale, including his personal residence, hoping that something sells so he can satisfy the bank. Otherwise, he and his family will be out in the street.

    It’s definitely going to get interesting.

    I think Walmart will be one of the last to feel the pinch for two reasons: one, they have the muscle to negotiate with (i.e. gouge) their suppliers, and two, when times get tough, people will seek the cheapest prices regardless of morality. A significant economic downturn may hurt Walmart’s sales of cheap accessories, but it will also give the mega-company an advantage over smaller, and especially local, companies. Soon, in smaller communities, it may be the only game in town. Which will hurt the economy more as the tax base becomes more dependent on low corporate wages and less on small business.

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