Will the Subprime Mortgage Crisis Cause Retailers to Go Out of Business?
Posted on | March 15, 2009 | 2 Comments
Prior to 2006, subprime mortgage and crisis were rarely, if ever, uttered in the same sentence. It was the American dream to own a home and EVERYONE should have that right. It did not matter if they made $6 an hour of $600 an hour, they still deserved to own a home in this great country. During the housing bubble, that really took off in the 1990′s, we started to see individuals living above their means. Buying a $240,000 home with a combined annual income of $60,000 was the norm. Even if you were a subprime borrower who was extremely risky to lenders, you still got the loan you desired. If you had any income at all, you deserved to own a home, right? Wrong! Unfortunately, it took one of the most severe financial crises in the history of the United States for us to fully understand this.
Now that we have seen over half of the invested capital in the United States disappear, it is making Americans think twice about even owning a home, no less living above their means. Anyone that is considered subprime is doing everything in their power to just stay afloat. Second homes, extra vacations and weekend vehicles are a thing of the past. The subprime mortgage crisis has jolted America back into reality. Is this a bad thing? Well, it is according to how you look at it. If you were smart with your money and made strong financial decisions through this mortgage crisis, you are sitting pretty right now.
President Obama and his administration created the Making Home Affordable Refinance Plan to reward those who made the smart financial decisions. Those of you who made your mortgage payments on time and have continued to save money for a rainy day will get to refinance under 5%. That could save you over $100,000 on a mortgage over the term of the loan! The one good thing about this struggling economy is that only the strong survive and their stars will shine brighter than ever. The financial savings are not limited to your home loan, they are everywhere!
This is the first time in my entire life that I have seen so many deals. When you go into any department or retail establishment, sale signs litter the entrance. Buy one get one free; half off a second purchase; 75% off your next purchase with a purchase of $100 or more. I could go on and on. If you have money saved and a little extra money to spend, now is the time to do it. It is almost silly not to spend money in this economy.
Brand new vehicles are being sold for under $15,000. When a friend of mine told me that he bought a Dodge Magnum for $13,000 I didn’t believe him. Four years ago, Dodge would not have sold you ANY vehicle for under $18,000. Today, car salesmen are almost begging you to take cars off their lot as they cannot give away a vehicle in the current economy. Once again, you are literally getting the deal of the century when you walk on a car lot. What is even better, it is whatever car your choose.
Working for a retail establishment that sells only the necessities and staple products leads me to believe that things are going to get worse. Each day, over $200 of coupons are brought into our establishment. To put this into perspective, less than a year ago, we received about $30 in coupons a day. Everyone is trying to find ways to save as they realize that this subprime mortgage crisis could resonate for years to come. I must admit that this retail establishment does not cater to the high income families, but does have a large demographic of average income Americans.
It is scary to see how hard people are working to save thirty cents. If this epidemic has only started within the last year, we are going to start to see retail sales decline drastically. As this economy worsens, I have seen the amount of sales and ads increase. The bottom line is that retailers will make less money. If they are making less money, there will be less jobs. Less jobs means that this economy is going to continue to spiral downward.
I wish there was better news, but I am just being honest. Everyday I debate if this economy can recover in the near term. All signs point to this not being the case. If home prices are declining, retail sales are plummeting and the unemployment rate is increasing, where is the money going to come from. Yes, there are those select few that we talked about earlier who are going to get the amazing deals, but there is a big problem.
Those who did save money are financially intelligent and they are not going to spend in excess or above their means. They are going to continue to be smart with their money and not throw their entire paycheck into a stereo system or a Nintendo Wii. Will this help the economy? Not at all! What it will does is cause the financially smart to be even richer.
The individuals that were spending above and beyond their means are the ones that are now trying to save 30 cents on each item they purchase. They are the ones who complete a transaction for $23.54 and have $18.00 in coupons. While this is $23.54 in sales it is REALLY only $5.54. How much money are the companies going to lose by giving away from merchandise? The answer, they are losing money hand over fist. Not only are they losing money on the sales, they have to pay people to give customers their free merchandise. They also have to pay all the costs of running an establishment such as heating/ac, electricity, technological equipment and on and on.
This begs the questions, will the subprime mortgage crisis really cause retailers to go out of business? The answer is YES! The subprime mortgage crisis which caused steep declines in home prices and huge increase of foreclosures will have a huge trickle down effect. You will see retailers going out of business left and right in the next few years. We have already seen it with Circuit City. Who is the next to go? No one knows, but one thing is for sure, a company can only give away so much inventory before it decides to close it’s doors. Guys and girls, it is going to get worse before it gets better so please be smart with your money.
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March 15th, 2009 @ 11:49 pm
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