Is The Economy Worse Than We Think?

We are presented with conflicting data almost daily about the “health” of the economy. And I am no economist, but I believe that I do possess some common sense.

So, here’s what I have been thinking.

It is obvious that millions of people are NOT paying their mortgage, rightly or wrongly, for their own reasons:

1. They can’t because of a job loss, death, disability or something outside of their control.

2. They won’t because it makes poor financial sense as their house is underwater.

My question is that with so many people NOT paying their mortgage, how can there be an economic recovery of any fashion? And then it hits me, people who used to spend thousands of dollars every month on their housing are spending that money now on food, clothing, vacations, gasoline, cars and alike. With the lag time between the moment of not making a mortgage payment to eviction being as long as two years, it seems logical to me that the reported economic numbers have to be inflated.

As foreclosures and short sales continue and people transition from non-paying homeowners to renters, millions of consumers will start having a housing expense again which will leave them less cash every month to buy other things. The result will be a slowing economy.

If you are a home seller, I think it means continued lower sales prices for at least the next 18 months. Price aggressively and get top dollar now!

If you are a home buyer, most of the recent data points to higher prices of everyday goods (largely because of higher energy prices), and that leads to inflation. Inflation is combated by the Federal Reserve with higher interest rates. So buy now, while the monthly carrying COST of a home is at near all time lows. Lower home prices sound good, but higher interest rates will nullify that benefit.

I have learned that “Common Sense Is Not Common Practice”.