Monday, October 10, 2005

Is this how the consumer boom ends?

Marketwatch's Marshall Loeb had an interesting article from the perspective of the future:

Anybody with a bit of imagination, with a feel for the future, can construct a plausible scenario. Like this: We should have seen it coming.

We were living beyond our means, saving absolutely nothing, spending more than we were earning -- like there was no tomorrow.

Most Americans were doing that. Worse, the government was doing it -- piling deficit upon deficit. And at the end of 2005, the total federal debt per U.S. household was more than $450,000.

But, as it always does, profligacy caught up with us. And the economy, which had been growing at a comfortable 3 to 4% rate for many years, came crashing down last year, in 2006.

If we think ahead and see how we are living beyond our means as a country, it's easy to see that at some point in the future, it will catch up with us.

Because it imported far more than it exported, the U.S. switched from being the world's largest creditor nation in 1981 to its largest debtor in 2005.

In that year, China held almost $200 billion of the U.S. debt, Japan held almost $700 billion, and even the OPEC countries held almost $50 billion.

That gave all of them tremendous power over the U.S. If they ever decided to dump some of their mountains of dollars -- either for pure economic reasons or out of political pique -- they could totally destabilize the U.S. economy.

Fears of just that kind of move caused foreign investors to pull part of their funds out of the U.S. investments, weakening markets here.

With all the media attention about consumer credit overextended, it may come as no surprise that 2006/7 will be the year for cautious spending and more saving. Let's hope this scenario above won't play out as bad as it can be.

continue reading article (and/or view comments)...

Monday, October 03, 2005

Net Worth, Real Estate, and Extended Credit

From all the recent press about the real estate prices cooling off, you would think that the sky is falling. There's so much analysis out there about how sales are slowing down whether its the relationship between the number of sales listings in the market versus the average number of days on the market or how people are coming to their senses and becoming more cautious about their spending. There also seems to be a glut of condos and condo conversions that will come to market in the next year or two. According a Fitch Ratings report, nationally, the rate of condo conversions has more than tripled in the past two years. What might happen is that when all these new condos come up, all these buyers who have overextended their credit will not come flocking to the sales office as it has been since 2001.

Although net worth might be up among the emerging affluent, since they've been house rich but cash flow poor, it's going to be tight times ahead.

Slowing Is Seen in Housing Prices in Hot Markets - NY Times
Home Builders' Stock Sales: Diversifying or Bailing Out? - NY Times
Real Estate in Bubble Trouble - NY Post
Supply Hits High In Condo Craze - Washington Post

continue reading article (and/or view comments)...