A Ledgie wants to know: Economy Edition

[strandinthewind]

I think the fall of Wall Street can be nothing but a bad thing in that if that happens, the US and world will suffer. As for the large salaries, I am not opposed to them becuase that is what the market is paying. Now, if they break the law, that is another thing.

As for the housing market tanking - housing prices overall in the US have fallen, but not by huge amounts. That will change though if a few things happen.

The first is no matter how much you owe on your house or how much the value of your house has fallen, it is all academic until you have to sell the house. In other words, as long as you make the payment, you likely will ride out any decline in value that likely will go up again.

The second is right now, only seven or so percent of houses are in forclosure. That is a relatively high number but it is no staggering enough to drive housing prices down but a few percentage points overall - though some areas will be effected more. If, however, that foreclosure number gets to, say 15-20 percent, then I think housing prices and values will spiral to over 50% or so. This is because the market will be flooded with product and not enough qualified buyers. In layman's terms, it will be a fire sale. I do not see the Feds letting that happen though. In reality, the bankruptcy laws likely will prevent that as well. If you cannot make your house note right now because it along with the average credit card debt is too much, the smart thing to so likely is to declare bankruptcy. A Chapter 7 will wipe out all unsecured debt like credit cards and you can keep your house and possibly renegotiate the terms of the mortgage, though that is very hard to do now, but likely will be easier as this crisis moves on. A Chatper 13 plan will not wipe out your debt, but it will exclude your house from the plan and you pay anything remaining to the creditors, which can be as little as 25% - over a five year period. Yes, bankruptcy is a harsh option and your credit is ruined for awhile (but certainly not forever, esp. if you make a good salary) - but, it is no worse than losing your house in a foreclosure and defaulting on the credit cards as well.

In the end, during the last part of the 90's the tech bubble caused havoc and many of the largest companies in the US imploded, causing massive layoffs and investors to lose trillions. The economy bounced back (ironically, mostly though housing) then and it will again.

So, in the end, pay cash for your stuff and make your mortgage and you will be fine.