And that’s what a lot of people are doing, so to speak anyway. You’d think with all the economic stimulation going on, someone would be spending money. It’s really the opposite. The average amount of money stocked away in savings accounts has increased by 5 percent in the last three months alone. Not to mention the great new trend of short-selling (when a homeowner sells their home for below what they owe on their mortgage). Why would anyone in their right mind do that? Because paying back $50,000 is a lot more manageable then trying to scrap together enough money each month to pay off a $500,000 mortgage. In other words, their house is already in negative equity and the homeowner is trying to cut their losses by selling before they become homeless.
But at the same time, all this scrimping and saving is helping the average American get back on their feet. The only thing it’s not helping is the economy and of course the commercial real estate market. Unless your head’s been under a rock the past few months, you’re probably already aware of the impending commercial property crisis. The crisis can be attributed to many factors, such as the crackdown on loans and lines of credit from banks – a theory most notably popularized by analysts and pundits alike. But to a larger extent, it seems an even bigger factor in bringing the commercial real estate industry to its knees is the aforementioned scrimping and savings.
Anyone who has taken a basic economics course will be familiar with the principle of supply and demand. As long as there are consumers who want a product or service, the industry that provides that product or service will survive and thrive. But once those consumers are gone then the industries will go down. And what also happens when industries fall, the office buildings and storage warehouses they once owned or rented will also no longer be needed. Why have a 10,000 square foot warehouse to store all those Now! CDs if no one is buying them; furthermore why risk loaning money to those purveyors of that fine compilation CD? To me, the crisis can be solved by a simple injection of consumer confidence. As they say, if you build it they will come?
So what does all this mean for Joe Schmoe? Well it’s great for the American public. We’ll keep getting cheap deals on flat-screen TVs and cars as long as big industry is in the hole. It may sound a little schadenfreude, but hey, with all that money you’re saving you can keep from getting foreclosed on in style. Or just spend it all on a good bankruptcy attorney. Whichever is easier.
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