Over the past week, the news on the economy has not been good. For employment, job growth ground to a complete halt last month, gaining no new jobs. The employment-population ration fell to 58.2% (9/3/11 Wall St. Journal) and the unemployment rate stayed high at 9.1%. Bank of America announced that it may ax 30,000 – 40,000 employees, and Deutsche Bank is moving in the same direction. As one can plainly see, the income and job security of the average American certainly isn't going up.
Now let's look at the consumer savings and debt side. One piece of positive news is that household debt loads are shrinking. However, mortgage debt as a percentage share of home values is sky-high, and nearly double what it was 25 years ago (9/8/11 WSJ). Close to one in three American adults who grew up middle-class are now on a lower income rung (9/1/6/11 Washington Post).
In the not so distant past, people in their 50's and 60's could get their mortgages paid off by this point in their life so that they could prepare for retirement.
Overall, consumer incomes are stagnant, savings are low, and debt levels are still high. Surely, the government is putting in place a long-term plan to get America to a sure financial footing, right? Alas, that is not the case.
Besides the current debt which the U.S. has no way to pay down, last Thursday the President opined that there should be 7 billion (nearly half a trillion bucks) in spending initiatives and tax cuts. If you look at recent programs like the buying of toxic assets from banks, various foreclosure relief programs, home buyer tax credits, cash for clunkers, etc., it's clear that neither the administration nor Congress have a clue about how to solve the problem, so they throw more money into the air with the hope that something good will happen.
Basically, none of this is good for housing. When potential buyers have no money to buy and banks are stingy about lending, the home values and sales have nowhere to go but down. The average rate on a 30-year fixed mortgage dropped to 4.12%, which is a record low, and still is not enough to crank up home prices.
Of course, owner financing can help in some situations. If a house seller owns a property free and clear or has a low balance on their mortgage, then creating up a mortgage note and perhaps later selling that mortgage note to a mortgage buyer can make sense. However, owner financing is generally not a good fit if the owner is carrying a heavy mortgage.
Month after month, the economic news seems to get worse and the politicians less capable. Nobody knows how this will all end, so keeping an eye on the always changing economic landscape is the best approach, as no miracles are likely to appear.
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