The Basis of Today's Problems

We are now witnessing the convergence of three economic circumstances. First, the subprime meltdown woke investors up to the real risk in low-grade paper. This sent the financial markets into turmoil. Housing markets such as Las Vegas and Miami had already laid the foundation for a disaster, by over building and excessive investor speculation. Even without the problems in the financial markets, these housing markets were headed for trouble. Prices in both these markets have been softening since last year.

Secondly, the unemployment numbers in the real estate field will get much worse before teh situation begins to get better. Layoffs in this industry impact communities to a lesser extent than other industries. When GM or Ford cut back, the economies of entire cities collapse. The real estate/mortgage industry is spread out all over the country; there are no “company towns” in this field. People that have been laid off can move into other fields without much, if any, retraining. Real Estate agents and mortgage originators are essentially salespeople. They will move into selling some other product. Even the back-office personnel can be more readily absorbed into the workforce. I’m not trying to minimize the difficulty of these transitions but I want to point out that, for these employees it’s a less stressful transition than it would be for employees of a manufacturing plant or a research facility that had to shut down.

Thirdly, and perhaps most signigicantly, today’s economy is forcing America into finally facing its day of reckoning. Deficit spending on both the governmental and personal levels have reached the breaking point. People have been supporting their lifestyles with the equity of their homes and their credit cards. The housing market wouldn’t be in crisis if people weren’t using their homes as ATM machines. Whatever programs are developed to address the problems in today’s economy will be just band-aid solutions. Until the basic spending habits of Americans and their elected leaders become more realistic, we are going to move from one economic crisis to another. You can spend more than you make for only so long.