NY Times finance article points out another of the spiraling kaleidescope of economic woes being wrought by the
popping steady leaking of the housing bubble and the
wild loan speculation that fueled it. New car sales are plummeting, since way back in 2007, when home prices still "always went up," about 1/9 of new car purchases were made with cash from home loan refinancing. People
using their houses as ATMs, taking out new mortgages for $100k or more above the equity, and blowing the cash on fun stuff. Like new cars.
It was a easy game, since after all, housing prices always went up. All the bankers and realtors agreed on that, so it had to be true. And since prices always went up, owing $700k on a house you bought 5 years ago for $350k, (with a down payment of about $25k) was just fine, recommended even, since your house was now worth $800k, and if you wanted to you could sell it and pay off the loans with a profit for your trouble. Now that those houses are more realistically valued at $450k, with a rental-approximate actual value of $350k, owing $600k is kind of a problem. That would be what the financial gurus call "negative equity," and when it's compounded by a person having taken one of those exotic non-fixed rate loans that ballooned to credit card level interest rates after a couple of years, it's driving people to "jingle mail."
What it's not driving them to do is
buy new cars.
Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates.
The impact on the broader American economy could be profound. Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown.
"It is a bleak picture, and it all hinges on the availability of financing," said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. "The whole universe related to the auto industry is touched in some way — parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors."
On a semi-related issue, is anyone else changing their driving habits yet, thanks to increasing gas prices? There are plenty of stories about that in the news; the increased ridership of public transportation, people carpooling, the
cratering resale value of SUVs and other gas guzzlers, but is everyone reacting in that fashion? Personally, it's making me drive faster.
When I pay $4.17 for mid-grade, as I did a few days ago (and that's the cheapest gas in the area; Chevron station nearer my apt was at $4.54 for hi-grade yesterday), I goddamn well want to get my money's worth. So I've been enjoying the driving experience more than ever. I'm laughing at 85 in the passing lane, and stomping it to savor my sports car's 0-70 acceleration in on-ramps. This must be how Spitzer felt paying $1000 a ride to high class hookers. If you're going to get fucked for top dollar, you might as well enjoy it, eh? So I floor it and feel the engine press me back into the seat, and as I slide into freeway traffic several seconds later, I smile, puff an imaginary cigarette, and think, "Yeah, that was worth $.50."
Sure, it's kind of like admiring the upholstery on the bar stools on the Titanic while you order a double shot on the rocks, but if you're on the boat (the US economy, in this case) and it's going down no matter what you do, you might as well enjoy the ride as long as you can. Remember last year, when we all thought $3 gas was outrageously expensive? Imagine the line you'd wait in today to pay that much for a fill up? Bet you wish you'd burned a little more rubber back then, when you could still afford it...
Labels: economics, housing
