We all know about the record rate of foreclosures and short-sales. And while these particular kinds of transactions have created short-term chaos in the real estate market, there is also a long-term ripple effect that will affect sales for years to come.
And that doesn't just apply to real estate sales. The loss of access to credit for millions of Americans over the next 3-7 years will have a devastating effect of sales of all kinds, as many consumers will be forced by necessity to make all purchases with cash.
Shoppers that previously had thousands of dollars of buying power will be reduced to practically none, and as inventories build jobs will continue to be lost.
There has to be a way to reconcile the fact that previously good borrowers were caught in an incurable situation. There needs to be a way to repair the long-term impact of those people that just didn't have any other way out.
For now, I don't have any solutions to offer. But I know that the problem needs to be addressed now before it's too late.
There is too much at stake to ignore it.
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Don't worry...in the future the lenders will be grading on a curve.
Richard:
I often wonder too about the solutions that wait ahead for those that due to no fault of there own, loss there home thru unemployment, and illness. My crystal ball is not to optimistic.
I think getting a secured card will help them on their way and help the bank have more confidence in them. The long term effects may be tough but credit got way out of control, so I wonder on some level if this was a good thing to reclaim a better balance of a spending lifestyle.
Richard.....I have my doubts about lenders and their daddy, the credit bureaus, being forgiving and restructuring to HELP those who are now down for the count......people lost their homes because of unemployment, but could they have kept them if they had not lived as LARGE??? we all live beyond our means and there are consequences that result.
Debbie...
I like that! lol and THX
L & L...
But I think that the enormity of the situation will demand adaptation! At least I sure hope that it does. Thanks.
Dianne...
I agree that it was not good to spend excessisvely on credit, but our ecomomy became used to the fat spending and going on a credit diet will have some very unpleasant side-effects. Thanks for the comment!
I think in the long term we will see little change from the bureaucratic credit process and scoring...a generational thing I bet. They will use this "season" as a teaching tool for years!
I believe our lives as consumers will change forever. Due to the lack of access to "consumer credit" the financial landscape has yet to be revealed. I know that my idea of what is necessary has radically changed.
The look and feel of our lives will change, but Americans are very resourceful and will come up with all kinds of ideas to make our lives better and in ways that we can't imagine yet. Americans always have. That heart that beat within our parents and grandparests drove them to lifestyle heights previously unknown. And it will again.
Richard - The real unemployment rate is much higher than 10.2% . This will definately have long term effects
Richard,
The solution to this problem is going to be challenging, to say the least. I'm not confident that the country has the right people and policies in place to right the course.
Rich
Hi Richard,
What a tangled web we weave. The future will be much different due to the practices that has occurred in the lending industry and the direction our country is headed. The consequences will be great for sure!
Richard, I have an aunt who has never used credit except for a mortgage. Never. She bought cars as she could afford them, she saved for new cars, she has always felt that credit cards were very dangerous things. She and her husband had everything they needed, they had things they wanted, they had a very rich life. We are, as a society, not of that mentality. I am also curious, like you, as to the far reaching effects this will cause.
I know I don't have the answers, and I don't think anyone does have the answers.
Great post Richard as always!
I spoke to my former boss who is a commercial plumber. His business is 98% commercial clients. He planned on selling his building when he retires in a few years. I sent him an article about commerical real estate and now he's thinking he can't retire or at the very least sell his building. I told him to hold off and just watch the commercial real estate side.
When I left there for my real estate career, he had 15 trucks and 22 mechanics. Now he's down to 2 trucks and 2 mechanics. He took 13 trucks off the road which is a smart move and had to lay-off 20 mechanics.
His bank froze his credit line and he's been doing business with them for over 20 years. His credit score is almost perfect.
Everyone is hurting when it comes to credit cards, loans and credit lines. It's such ashame that good people are suffering because of the lending industry.
Richard as a society we allowed this to happen. I have many friends who just didn't think twice about spending to the ends of their credit and then only made minimum payments. A culture of spending too much has led to our crisis. I don't know the answer either but I do recognize that "We really have to change our cultural attitude about a lot of things."
You make a good point. It will take a long time to recover.
I will always be so grateful to my parents for teaching me about money. I watched them save (my Dad never had a pension or 410k) and be frugal, but we were never hungry nor did we ever go without. You could not call us poor, nor were we rich. My father always said "Pay yourself first" and my husband and I continue to do that. We have no car payments and our credit cards rarely have a balance. He also used to say that if you have to charge it and can't pay it off every month then you can't afford it.
And Richard, too many I know are downplaying the credit damage from their short sales, like it is a badge of honor now, cause everyone has done this. Like the stigma has gone away or something.
Richard: Sadly, I think this is a natural reaction to what happens when people spend more than they can afford. The idea of a credit card is like cash to people. It's not. Buying a meal at a local fast food joint on a credit card is literally taking out a loan to buy it. If you can't afford it, don't buy it. I hope more than anything that this economic event brings about a new generation of saving and financial responsibility. It's going to be much different than what we're used to, but reality is that we can't keep spending more than we make. It's insane.
Darn it! Another post that makes me worry about what kind of car we'll have to get when the lease on our Acura ends next July =(
I believe that everyone has been too focused on the short term of this situation, but you are absolutely right my friend, the problem is larger than the immediate issue at hand.
Richard,
Your right about the long term effects and not just in this industry but in virtually all industries. I have no idea what the solution is but I would hope that the lesson of not living beyond your means is learned.
Those who didn't stretch their credit and instead saved are in much better shape than those who choose not too. I realise that this is difficult but it's not impossible.
:)
Some of whqt you talk about is already happening. It is only going to get worse!
Richard,
I agree with Richard I. But I think the short answer is or will be , the government will just print more money. That seems to be the answer to everything right now. And that will creat an even bigger problem.
Richard - "THE RIPPLE EFFECT". Interesting concept. I wonder how that concept got lost on our "leaders". I can't think about this, it's Friday. Have a great weekend.