Unless you've been living under a rock, you've heard about the downturn in the housing market. For some sub-prime mortgage holders, this means losing their homes due to foreclosure. For mortgage lenders, this means a tightening of lending standards and huge business losses. For investors, this means dropping stock prices. For home buyers, this means more difficulty getting mortgages, but also results in lower rates and lower home prices. For home sellers, this may mean selling the house for less than it was bought for, and having a hard time finding buyers. For realtors, builders, inspectors, appraisers, and others in the real estate industry, this means slower business.
But what does this mean for me?
Yes, my 401K account is going down with the rest of the market, but that doesn't bother me so much- I'm in investing for the long term, so short term losses can be tolerated, even if they're nerve-wracking. I can "stay the course" and know that it all works itself out in the end.
The above people listed aren't the only ones affected by the downturn- the affects will continue to ripple into non-real-estate markets. For example, if home prices go down, people are less likely to put money into improving their homes because they won't be able to recoup the cost when they sell. This, in turn, affects home improvement stores. My husband happens to work for a company whose only client is a certain national home improvement chain. Before Christmas, we found out that, to cut costs in the face of the downturn, the chain decided to drop his company and all the companies like it. My husband's company- a national company with employees at every location of this chain's store- is now going out of business and the hundreds of employees, from the top down, are losing their jobs at the end of January- today or tomorrow.
We're good borrowers with a great credit score, had no trouble getting a mortgage, got a good fixed rate, bought well within our means, aren't planning on selling soon, aren't in the real-estate business... and the housing market downturn still affects us personally.
Lessons: Budgeting is important. We have a budget that relies on just one salary, so with my husband not working, we're still able to go on with "business as usual". We won't be able to over-pay on the school loans, but we saw this job loss coming and took that into account when making a goal of paying them off before the end of 2008. This also highlights the importance of an emergency fund- we have 3 months of expenses saved away in case anything does happen.
So, we're on to a new adventure. We're talking a lot about the future, where we want to be in 2, 3, 5, 10 years- and how these less-than-ideal circumstances can turn out to be a blessing. In the meantime, though, it's interesting to see how larger, high-level economic conditions can and do affect people in their day-to-day lives in ways we don't think about.
How is the housing market downturn and possible recession affecting you directly?