How to ride out a "recession"

A column by Steve Chapman got me to thinking about how the economy impacts me. Read it.

No American feels the impact of an international economic crisis. But the reality that does touch people is having to sell a home at a loss to avoid having it foreclosed. That seems to be the person "on the tip of the spear" of our woes. Fortunately, that person represents 0.58% of mortgage holders. Yes, thats right, a small number. But it is a bigger number than the usual 0.28%, so that's where the giant numbers you see come from. Fun with numbers. If I had a business that generated $0.28 per year in sales, then I was able to get to $0.58 in sales the next year, I could report that sales were up 107%! It is so easy to succeed.

In the US, there are over 119 million homes. Of those, 40% are owned free and clear, not mortgaged, according to the Census. So doing the math, 4 million homes are somewhere in the process of foreclosure, including being more than 30 days late with a payment. We have all been in foreclosure, technically.

The situation of foreclosure, like most bad things, is a result of accumulated problems, that when taken alone, are not disastrous.

1) No personal safety net of savings, or one too small is the poor foundation that leads to economic collapse.

2) Job loss is part of the issue in 38% of foreclosure. The jobless rate going above 5% is indicative of a real problem, for anything below that is considered full employment, so the trend is disturbing as are the actual numbers.

3) A health crisis is part of the problem in 25% of the cases. That people living on the edge of financial ruin own a house but not health insurance is puzzling, seeming to add more weight onto a weak financial foundation.

ADVICE NUGGET TO THE KIDS: When you lose a job, get another, regardless of how fulfilling it is; and maintain health insurance first, it is a basic, and it is affordable; and maintain 6 months of living expenses in a savings account. This is how you avoid financial ruin.

Editorial comments follow.

The fever to get more Americans into their own home has been a political goal that has spawned profits and risky decision making by banks and individuals since the mid eighties. Billions in profits have been made on the decisions to lend money to people who can't afford to pay it back. But with a booming economy, everyone "won". The trillions more that was "going" to be made on the interest for these loans in the thirty years of their life was too tempting for bankers and financial geniuses who then packaged these potential income streams into leveraged instruments they could sell. And more of the financial geniuses snapped them up.

Now, the piper is to be paid. Ooops! A rise in foreclosures means no money comes in to service the loans, and confidence, the key ingredient in the scheme, fails, as do those foundations of the leveraged notes. And when a leveraged note fails, the repercussions are, well, LEVERAGED! Owwieee!

But what I want to know is, why is the government using my money and your money to "fix" all this for those who profited and are now suffering? Why did I act responsibly and miss this gravy train? I want my share of your money too, after all, isn't that my right? See how easy it

is to go down the road from compassion and concern, past no accountability, and arrive at socialism? Oh, and if you wonder why that is bad, bone up on the countless and continuing failures of socialist systems.

But really, is the human face of our poor economy as bad as we are led to believe? If the statistics aren't talkin to ya, look at this map:

The red is bad. These are the areas that are feeling the problem, and causing the problem. Keep this in mind, the creative financing that allowed people to buy homes they couldn't afford became popular because the cost of the homes was too much for them to afford. There is a pattern there. Get rid of Phoenix (why the HELL do homes there get so expensive), LA and Vegas, well throw in Detroit too, just because it is a good idea, and guess what, nationally the foreclosure rate is lower than it historically is. Makes you think, eh?

BIG ADVICE NUGGET FOR THE KIDS: If you can't afford something, do not buy it.

OK, so reality time:

1) House prices went up,

2) lenders figured out how to exploit the laws congress passed in the eighties to allow those who were not able to qualify for loans to do so (now this is a great case of unintended consequences to legislating social programs at the expense of economic reality!),

3) people were able to buy homes they couldn't afford when they signed loan contracts with ridiculously escalating interest rates, HOPING that the future would not occur,

4) real estate prices continues an upward spiral in response to a new, falsely created mass market of buyers,

5) more people signed loan contracts to get on the real estate market ride in spite of being stretched beyond their economic means to make the silly low payments of the first two years of the ARMs,

6) and a loss or reduction of one income, or an onset of a medical problem occurs, gas prices and food (thank you Iowa Corn Growers for the bio fuel madness lobby) prices go up,

7) the shit hits the fan (SHTF)!

But what of the rest of us? We are suffering too, or so the news tells me. Well, we can always tighten our budgetary belts, rethink our spending needs and wants, and keep on drivin' (well figuratively). It has worked every time, and will work now. And the price of homes nationally is down about 6%, a start, so save your money, and buy a house with 20% down.

UPDATE: new data compiled and reported this week shows that the only states with housing prices down more than 4% are CA, FL, NV and AZ. All the places that have experienced the incredible escalation of prices and have been experiencing the worst of the foreclosures. It is so logical, it is silly. The issue- the most quoted report on housing, Standard and Poor's Case/Schiller report, fails to cover the entire market of homes equally. Here is an article on how that is done.