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Wednesday, March 19, 2008

The second wave...

I am by nature a bit pessimistic - a trait that both my wife and my upbeat manager are trying hard to get me to change. I've posted several times here about making 2008 a more optimistic and upbeat year for myself and I must admit that going into each day with a positive outlook has helped. I'm off to a reasonably good start to the year and have lots of good, positive things going on right now. However, I'm also starting to see a rather disturbing second wave of real estate problems develop that portends some rough times ahead in the market.

What I'm seeing now are not the sub-prime borrowers getting into trouble and losing their homes to foreclosure, but rather the prime-rate people starting to struggle. It doesn't take a whole lot to tip a highly leveraged society like ours into a recession and that has already happened. The combination of way higher energy prices and the ripple affect that has had throughout our economy and the current real estate driven credit crunch have put a lot of stress on ordinary people who were not in trouble a few months ago. Little things like overtime going down or a company bonus not being paid this year or a spouse getting laid off or going part-time can tip the balance between being OK and being in trouble and I'm seeing that all too often lately.

I'm reading articles written by learned economists that predict that this will be a "shallow" recession, but that it may last a while longer than normal. The unreported issue may turn out to be that very few of us are in a position financially to ride out a recession, no matter now shallow it may be. It has been well reported that Americans don't save enough, so there is little cushion in the bank to ride out the storm. That is what is driving the second wave of housing woes that I see on the horizon. If the housing market weren't already in the tank, many might have used the equity in their homes to ride this recession out. Now, many are discovering that their houses are worth less than what they owe on them. The piggy bank is empty.

So, all of a sudden Joe Average citizen, who was not some sort of sub-prime deadbeat, is in trouble with his mortgage, too. This could shape up to be the perfect storm in the real estate market and leave us awash in foreclosures. I certainly hope not. I hope that is just pessimism coming through again. I hope. And hope springs eternal. Let's all sing a chorus of "The sun'll come out tomorrow!" Where's my happy face when I need it?

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