Normally housing downturns are preceded by downturns in the economy. This one wasn't because of the asset bubble. Houses became commodities rather than homes. Speculation, fraud and investor exuberance inflated the prices far beyond normal rational levels. Like all asset bubbles, it burst and prices are returning to normal levels. But what about the spillover to the rest of the economy?
Now that this has spread to the rest of the economy will there be a 2nd wave to this housing bust. The first wave is the deflation of the bubble prices currently hitting us. Once the prices return normal levels, will a 2nd wave drive them even lower? This second wave, driven by a severe US recession could take prices far lower than those normal levels. A severe US recession would put millions out of work. Many of those people are in homes they can easily afford right now, but they might lose them if they lost their jobs.
At this point a recession is all but a certainty. In California were in it, and have been for a while. The argument amongst the so called experts is now, how bad will it be. Goldman Sachs has just announced that they are now forecasting a much deeper recession that they expected earlier.
If you read the news all you know about the job losses. They are not just in housing and banking anymore. They have spread to manufacturing, service, government and just about every other sector of the job market. Auto makers, airlines and even Starbucks are laying off.
The talk now is about the coming wave of Prime and ALT A defaults. Will the talk next year be about the coming wave of defaults due to job losses. If you lose your job now, finding another will be difficult. The competition, even for menial jobs is fierce. They are getting thousands of applicants for jobs at Walmart.
Corona just announced it is eliminating 112 jobs due to budget shortfalls. The shortfalls are a result of lower property and sales tax revenues. Lake Elsinore also just had a round of layoffs. Remenber the good old days when a government job was a safe job? I'm not sure there are any safe jobs any more.
Sorry if this post is a little too "tin foil hat" for your taste. But the news these days does not fill me with optimism about the future. I think the government is far too optimistic about this crash. I don't know if they are just putting forth a brave happy face to calm people. Or if they really actually think this will be over in a year or two.
I think the US will be changed forever after this. Hopefully for the better. We have become the nation of the quick buck. A nation trying to keep up with the Jones's. And a nation of perpetual debtors. Maybe this is what we need to snap us back to reality.