Just in case you were ever wondering why the news media makes such a big deal out of home sales and prices, now you know. We often take home ownership for granted... We buy the place, make payments and pretty much forget about it. In today's economy, that's a dangerous game plan. Why? Because homes are for most of us the majority of our net worth... And this week's study by the Federal Reserve made you likely want to puke.
The study gave us a long-term idea of just how bad the housing bubble, along with the resulting stock market drop hit Americans. On average, the median net worth of citizens dropped over 38% from the year before the bubble completely burst, and two years afterwards. If you need any solid reason for why the economy is stalled in neutral for almost four years, there is your answer - we have no equity.
Luckily for us, at least the stock market gained back most of the 35% on average that it lost in late 2008 and early 2009. That was good news for those with 401k's and older Americans. For people in my age bracket (35-44), the bubble had an even more devastating effect on it, because for many of us, the house was the only thing we had equity in - emphasis on HAD... On average, we lost 50%. Is it any wonder why people in Generation X can't stand DC? We have no jobs, no equity, rising costs for everything, and likely a hacked off retirement we've been paying for for 20 years. Thanks Washington, F**k You too...
We think most of you get the idea of how it's all tied in, but for those of you in Allendale, we'll review the cycle of woe... There are too many houses built, and still too many others for sale. Supply vs. Demand states that the prices will have to drop, and therefore the equity built up in your house just dropped. Millions lose their jobs, and the ONLY way for it to recover is for consumers to have more available income to buy things, and create new jobs. So, if you no longer have equity, you can't borrow money - especially in these tighter credit times. No one can buy anything, so the economy stalls. Simple enough.
This was absolutely true for us. We had about $500 net worth in 2007, and it's down to about $250 now... And since we lost our job, we can't refinance the 6.38% mortgage on the house, we're blowing an extra $300 a month that we could be saving. Yes, it's a vicious cycle, and it's going on all over America...
When you have numbers like this slapping you in the face, it's not hard to understand why our economy is stuck in neutral - and until something breaks, it's likely to stay that way. That's why we're waiting for the housing market to pick back up - to create jobs, but just as importantly, to clear out the glut of available houses, which raise prices - and makes every American home owner's Net Worth go up... Don't hold your breath for it just yet - maybe just pray.....
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