Posted by: Kevin | August 21, 2007

More Crappy Economic News

From CNNMoney:

179,599 foreclosure filings, which include default notices, auction sale notices and bank repossessions, were reported nationwide for a 9 percent rise over the previous month and a 93 percent jump compared with July, 2006.
This past winter, RealtyTrac had forecast a 33 percent increase in U.S. foreclosures for the year but now it’s raised its outlook. “It’s trending to close to 2 million now, 60 percent more than last year,” said Rick Sharga, RealtyTrac’s vice president for marketing.

Moody’s is even more pessimistic with its forecast of some 2.5 million defaults for the year.

Ignore this at your peril.  2 – 2.5 million people being foreclosed on is a lot of people.  Some of these foreclosures will no doubt be on investment properties but most will not.  Something tells me those people being foreclosed on aren’t going to be jamming the aisles come Christmas time, looking for the latest Tickle-Me-Elmo or Furbie

This is why I see the problems in the housing market spilling over into the consumer market.  Foreclosure doesn’t make your money problems go away.  Those people losing their homes will be scrambling to find a new place to live.  They’ll be scrambling to put their lives back together.  What they won’t be doing, is buying luxury goods or anything unnecessary. 

Then there’s the impact on the housing market.  This will increase the stock of available homes in what is already a buyers market, putting more downward pressure on prices.  So even if you comfortably own your home, this news is taking money out of your pocket in the form of lost equity. 

I want to be clear on what I think here.  The sky isn’t falling.  However, there have been underlying weaknesses in the economic growth we’ve seen over the past 4 – 5 years.  That growth has been fueled mostly by an increase in consumer debt.  That debt has come in the form of higher mortgages and higher credit card balances.  Such a situation can be tolerated in an environment of increasing wages.  However, wages have been stagnant for 6 years now. 

That situation can’t last forever.  Some of that consumer debt is now bad debt, debt which cannot be repaid.  Our economy is going to suffer while that bad debt is identified and flushed out of the system.  


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