Are We No Longer Consumers?
Posted by JimSeveral clients have asked me this important question; are we as a nation going into collective consumer rehab? Has The Great Recession taught us the difference between buying what we need and what we crave? There are serious implications for real estate if this is so. Consumer spending is 70% of the our GDP and as you know, Americans are throwing around money like manhole covers and the result is plenty of business closures. The tale of Circuit City and the like may continue to occur with ample collateral damage, both economic and social.
The press has had a field day with this question and the prevailing view seems to be there will be meaningful social and economic change ahead. History would suggest that this is so. The event, while not rising to the level of a depression, is certainly no garden-variety recession. We may want to spend and lust for new goodies but the hard reality is that we may not be able to afford it.
Much of the recently-deflated bubble was based on a self-perpetuating cycle of debt and spending. Debt was enabled by rising home values and the real villain in this drama, the home equity line of credit. Banks operated like drug dealers and got Americans addicted to cheap and easy credit. Now, like the common heroin addict, we are going cold turkey. Once we are through this process, I suspect we will slip back into our old habits. Some people need to learn their lessons a few times.
