Don’t worry, this isn’t a political post, at least not overtly 🙂 It’s been hard to miss the news of the on-going Government Shutdown the past few weeks. While I believe a deal will be struck soon, or at least a stop-gap measure to re-open the government for a period of time, kicking the can down the road a bit further, one thing has really struck me with all the reporting:
The financial distress that most Americans feel by missing even one single paycheck.
Now, I am very sympathetic to anyone who has an agreement with an employer to get paid, that they get paid. I feel bad for all the federal employees. However, there are many jobs out there that have the potential for disruptions in pay, the federal government being one of them. It would be hard to say that you got blindsided when it seems like every few years there is a shutdown. Anyone who works for themselves has ebbs and flows with regard to income. For people to miss one paycheck and to then cause missed mortgage payments, rent payments, car payments, etc. speaks to a much, much bigger issue.
Debt Levels
Americans for the most part live hand to mouth. Miss one paycheck and many people immediately can’t pay their creditors, and American have lots of creditors. There is little if any savings. In fact, my mind was blown when reading statistics such as 63% of Americans, 63%!! do not have $500 in savings.
People are loaded up on college loan debt, auto loan debt (does anyone pay cash for a car anymore?), consumer debt, credit card debt, mortgage debt, you name it.
The whole system is built on ever-expanding credit and low interest rates. Take automobiles, for instance. Since the interest rates have gone up, fewer people are buying new cars. The average price of a new car in the US is about $36,000. Robust and continually-growing sales only works with gimmicks like 0% financing for 6 years and the like. Once you take that away, the new vehicles become much much more expensive. And this is not even mentioning the price of gasoline at the pump, which is at the mercy of the oil markets. Down now, who knows what the future holds?
But what happens when the credit available contracts and the interest rates go up? Demand and consumption go down. That means GM closes plants. That means jobs go away. That means paychecks stop. That means defaults occur.
We live in a highly interconnected world, with highly complex, and also highly fragile systems.
Denver Real Estate
What does this mean for Denver Real Estate? Well, let’s face it, we are in a boom town here, and it’s gotten a lot more expensive. Real Estate alone is up nearly 60% since just 2011. How much more runway we have here is hard to say. As an example when viewed through the debt levels synopsis from above, Denver is a very young city in relative terms. Young people in general have less cash on hand, more debt, and are highly leveraged.
Home prices keep going up, yet at the same time interest rates ticked up, and we saw in 2018 the market fell off a cliff in July once rates crested 5%.
As mentioned earlier, these are complex systems, and oftentimes fragile. A relatively minor cause like missing one check, or an interest rate increase of 100 basis points can have huge ripple effects due to how our system, and our society runs.
What are your thoughts? Drop me a line or leave a comment below.
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