The eye of the recession’s storm

Is the recession really (not just technically) over? Is the economy coming back? Are jobs coming back? Obviously, the answers to those questions depend upon whom you talk with. As the old saying goes, “If your neighbor loses his job, we’re in a recession. If you lose your job, we’re in a depression.”

Here in America, the economic news is still pretty dire. A recent survey of college seniors revealed that 85 percent said they planned on moving back in with Mom and Dad. They simply can’t find jobs. The October 25, 2010, edition of USA Today ran the headline: For Many Over 55, Debt Defers Dreams: Recession Strips Away Savings, Jobs. The article states, “The unemployment rate for Americans 55 and older was 7.2% in September, a major increase from 2.9% in September 2006.”

Overseas, the news isn’t much better. The British government recently announced austerity programs that will cut 500,000 government jobs and cut welfare payments drastically. The French rioted in the streets, protesting the retirement age being raised two years from 60 to 62. Japan is now sending work overseas, which means more unemployment in Japan. The Yen’s strength makes Japanese products more expensive. So they seek lower-wage countries to manufacture their products. Toyota is set to produce 57 percent of its product overseas, up from 48 percent in 2005. Nissan will produce 71 percent overseas, up from 66 percent just last year. Bye-bye, Japanese jobs.

What Does This Mean?

Recently, as I was finishing my dinner at a local Italian restaurant, my waiter asked me, “May I talk to you about my mortgage?”

“Sure,” I replied.

“I haven’t paid my mortgage in over 18 months,” he said. “What do you think I should do?”

“Has the bank been calling you?” I asked.

“At first, but lately I’ve heard nothing,” he said hesitantly.

“And I’m not the only one. Three of the cooks in the kitchen have also stopped paying their mortgage.”

“And what are you doing with the money?”

“We’re saving it.”

“And what do you plan on doing?” I asked.

“Wait till they take our houses,” he said. “Do you think this is a good idea?”

“I wouldn’t do it,” I said with a smile. “Why are you doing it?”

“Because the mortgage is more than the value of the house. We’re better off not paying the mortgage and saving the money. Let them take our houses.”

I didn’t agree or disagree with this man…yet, silently, I couldn’t fault his logic. Since he was 18 months behind on his mortgage, he was so far behind that he was actually ahead.

As you probably know, the mortgage mess is only getting worse, not better. Many people aren’t paying their mortgages because they don’t have a job. Yet there are a growing number of people who have jobs but who are also refusing to pay their mortgage.

A medical doctor friend of mine confirmed this growing trend. He said the doctors he works with, doctors who make a lot of money, are buying a lower-priced second home and then defaulting on their primary residence.

If this trend turns into an avalanche, the real estate market will crash again. The only people holding onto their homes are people like me, people who purchased before the bubble and don’t owe much, if anything, on their homes.

If there is another real estate crash, it’s people like me – people who pay their mortgages – who might be the biggest losers.

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The eye of the recession’s storm