How will the crisis among sub-prime borrowers affect the housing market and the overall economy?

Question

The American economy is driven first and foremost by consumer spending. Some think that this crisis will trickle down into the rest of the economy and snag businesses and people who have poor credit ratings and limit everyone's ability to finance large purchases, thus hurting those who are selling those large purchases, thus... well, you can see the dominos... Also, the net worth of the average consumer is sliding as the value of his home corrects. Others believe that this is far smaller than past crises such as the S&L shakedown during the 80's. The economy then barely burbed. Please give me your opinion, and more importantly, direct me to an interesting article on the subject.

Oh, and one more thing, New Jersey, your property taxes are atrocious, and I'm leaving your economy by the end of the year.

Answer 1

As I have been stating for the last six months, it is not just the sub prime market, that was the beginning, now we are seeing the Alt-A, and the prime market taking a hit. The hit will be more pronounced in the next few months as the ARM's are getting ready to adjust. Consumer spending drives the economy but what happened is housing inflated at double digit rates, energy has doubled, income has only gone up an average of 3.9%, and people treated their homes as giant ATM machines, now the bills are due. The artificially inflated worth of homes compared to rise of income is similiar to the dot com bubble of 10 years ago, and has now come home to roost. The tightening of credit put less buyers in the market, yet the foreclosure's put more homes on the market leading to depreciating worth. It's a cycle. Now we see the economy loosing jobs. We are heading into a recession, the naysayers have been blaming the lenders, and the sub prime market but it goies well beyind that.

Answer 2

You are right on, the american economy is driven first and foremost by consumer spending. The sub-prime market is greed by lenders. They were and still are lending money to people who have poor credit and no money with ARM and high rate mtg and these people have no business buying a home. How many times have you seen the question here Quote: I have NO money and NO credit and I want to buy a house daaa. Give me a break. They find some lender to put them in a mtg and within 1- years the house is in forclosure. Who didn't see that comming. I think what we will see from all of this is more regulation on Mtg brokers just like we see in the S&L with appraisers, back then appraiser were not licensed or any laws to protect the public. Someone has to get control of the Mtg brokers and lender that offer all the sub-prime loans, to people that don't have good credit.