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Originally Posted by xilsharn  Maybe you're a professional economist, I don't know, but I would not classify the subprime meltdown (cliched metaphor is getting tired already) as a minor bump. Just the drop in equity cashouts is going to equate to a huge drop in consumer spending. Hell, it already is. |
It's a negative in the short term, it's a positive in the long term. Short term we get even slower housing sales/starts for single family homes, increased sales/starts for multi-family (which is a wash as far as I'm concerned, others may disagree.) Some lenders take a hit, with a few becoming acquisition targets or even going under. With all the competition in the lending market a little consolidation won't hurt much. The biggest short term problem will be blight from foreclosed houses.
Consumer spending does not drive our economy. Only the talking heads on tv think that. Our economy is driven by investment and research and development. The news will report whether Wal-Mart or Bestbuy had good retail sales and then analyze that to death, but they won't report on Merck's RoI for R&D, or Caterpillar's newest product innovations, etc.
In the long term lending will tighten, which is very good, because lenders were being very loose with their criteria and making bad investments by lending to people who normally wouldn't qualify at the maximum possible amount they could lend. This essentially created a false economy in which single family home demand was artificially higher than it should have been. The housing market, in my opinion, really needs this shakeup because it's overwhelmingly bloated. This will further drive single family home prices down, which is great, because they've been overpriced for a decade.
