The Sky is Falling

Well, maybe not the sky. But with the Dow Jones Industrial down 23% in just a week and a half it sure seems like it.  World financial markets are reeling, banks are failing, and the US government must think that money grows on trees, because the government’s response to the problem is to throw money at it. One question I have for all the Senators and Congressmen, “Where do you think all this money is coming from?” Either the printing presses are rolling and you are printing more money, or you expect to take it out of my pocket.  I don’t like either option.

The news media is busy feeding the flames of panic. I quit watching. I just couldn’t stand another breathless, busty  blond, eyes wide with excitement, telling me about the future horrors if the current crisis is allowed to continue without someone doing something.  Oh yes honey, the horrors. You probably won’t be able to get a new Lexus this year!  You might even have to go to only once a week manicures! Whatever will we do! And what really gets my goat is the amnesia the media seems to have.  It doesn’t seem all that long ago that the crisis was rapidly rising oil prices. Yesterday it was reported that adding to the crisis, is the rapidly falling price of crude oil. Hmmm?  Seems to me that should be a good thing.  I certainly don’t mind that it is costing me $5 less to fill up my tank than it did just a few months ago.

I’d like to inject just a little bit of sanity into the mix.

Yes the stock market is plummeting.  What this means is if you sell your stock right now you are not making a very wise decision.  The idea is to buy low and sell high.  Not buy high and sell low. (Which seems to be what most people do.)  If you are thinking of buying stock right now, and holding it for the long term, then you have the better idea.  I would wait a few days to make sure the free fall has stopped.  Then look for the stock of companies that are financially sound. I would especially look at companies that provide basic goods are services, as oppposed to companies that sell luxury items.

Yes, the credit markets have tightened up.  The news media is reporting as if this is a bad thing.  It is a bad thing for banks and lenders.  They won’t be able to collect super high interest rates and fees from people that probably shouldn’t have gotten a loan in the first place.  Yes, companies that were running on ever extending credit lines and bad business practices are probably going to go under. The truth is, they were going to fail eventually, this way they fail with a little less debt.  But I don’t think it is such a terrible thing for your average person.  Maybe you can’t go on that vacation, or buy that new furniture. You can work on paying down your current debt instead.  If you are someone who has been using credit for daily living expenses, well now it is time to learn how to live within your means. I have worked with  people from all income levels on getting rid of debt, and I can say with certainty, If you live in the US you probably have many places you can cut expenses, without seriously impacting your way of life.

And you can still get a mortgage these days.  You just can’t get a subprime mortgage. You just have to have a decent credit score, put 10% down, and have no more than 40% of your income go to debt repayment.  In other words, you have to have the savings and income to be able to repay the debt! That is not so bad.  I remember a time when you needed a 20% down payment, and your total housing costs (principal, interest, taxes and insurance) were to be around 25% of your monthly income.

And finally, the housing market. if you own your own home, and you can afford your mortgage, don’t worry about the housing market. Don’t try to sell your home and it won’t matter to you. If you are looking to buy a home and you have decent credit, well then now is the time to get excited!  You should be able to find some bargains out there.   But, if you are trying to sell your house right now,  I am sorry to tell you that you will not be able to get the  inflated rates of the past. the crazy hot sellers market is gone and we are now in a buyers market.  Not only that, people can’t get mortgages for overpriced houses anymore.   If you want the biggest market for your home you will price it so the average upper middle class family can purchase your home with a conventional 30 year mortgage. The other buyers you will find are real estate investors who are looking for a bargain. If you paid too much for your house a few years back, you are going to take a loss. My advice, talk to your tax advisor and consider turning your house into rental property. Then in a few years you can sell at a loss and write some of it off your taxes.

So, despite what the news media would have you believe it is not all doom and gloom for the average American. Sure things are going to be tough for awhile, some people are going to lose their jobs when shaky companies fail, some people are going to have trouble selling the houses that they can’t afford. But I think in the long run, the people of this country are going to be in a better place financially. They will have learned that we can survive without excessive consumerism. (The environment will thank you also!) People will have leaned to live within their means, and for those who have cash or good credit, there will be some amazing bargains in housing, stock, and luxury items.

What do you think? Tell me really, how is this crisis directly affecting you?