Real estate was one of the key drivers of the economy the past 20 years. This has changed. Just a little bit. Many people were using their home as their own private ATM. Want a boat? Write a check from the home equity line of credit. Want a new in ground pool? Refinance the house to make this happen. These days are long gone. Some areas of the country have really been hit very hard, others less so.
When unemployment was rising and home prices were declining many Americans fell behind. And it showed up in their credit scores. Although unemployment remains stubbornly high, it has come down somewhat. It’s going to take many people a long time to get their credit score back up. With poor credit scores it’s difficult to borrow.
The underwriter is the person who reviews all of your financial information to determine if they will grant you a mortgage. This term might not be familiar to you if you are under the age of 40. Recently underwriters have been very good at declining mortgages. It’s strange, they want you to have a job, show good credit scores and provide a down payment. Imagine that.
There’s an often cited statistic that the consumer accounts for about two thirds of the economy. The consumer is tapped out. Finally. I though the consumer would have been tapped out years ago. Boy was I wrong. All it took was a pen to sign your name and buy a house, lease a car and go on a nice European vacation. Times have changed.
I don’t think everyone will be brown bagging it for lunch, but they will definitely be more cautious. Why? Not necessarily because they want to …..but because they have to…
ACTION ITEM: Investors need to understand the implications for the continued deleveraging of America.
Thomas F. Scanlon, CPA, CFP®
The information contained in this report does not purport to be a complete description of the developments referred to in this material. Any opinions are those of Thomas F. Scanlon and not necessarily those of RJSF or Raymond James.