Most people live paycheck-to-paycheck, and there are a lot of reasons for this. There is overspending, but the main problem has been directly related to the financialization of the economy taking place since the 1970s, which is that in order to live an “average” American life, costs rise so much that one eventually has to go into debt in order to perform basic functions that are considered “normal” in any society, eventually to the point where one works seemingly without end for diminishing returns.
The mortgage situation in the US, where most houses that people ‘own’ are actually rented from lenders, is a prime example of this, fotr while luxuries in homes have increased, the basic costs of building and buying a home have outstripped incomes dramatically. It is a financial crime against the common man and a recipe for social disaster that one swift blow could expose, which is what COVID-19 did- it was a swift blow that exposed the fragility of the financial system and is causing collapse.
It is of note that in reports from Marketwatch and Zero Hedge, new data suggests that a massive round of homebuyer delinquencies is about to come to pass as a result of this.
UK-based forecasting firm Oxford Economics, 15% of homeowners will fall behind on their monthly mortgage payments in a ‘tidal wave’ of delinquencies.
Stimulus legislation signed by President Donald Trump allows any borrower with a federally-backed mortgage to request forbearance for up to 12 months, meaning the homeowner can skip or make reduced payments during that time.
Given the risk mortgage companies are facing right now, many lenders have imposed more stringent requirements for loan applicants. “The uncertainty in the mortgage market has contributed to a significant tightening of lending standards that may persist even once a recovery is underway,” Oxford Economics wrote.
An while the pace of requests for forbearance has slowed in recent weeks – however that could change. “Although the pace of forbearance requests slowed this week, call volume picked up — which could be a sign that more borrowers are calling in to check their options now that May due dates have arrived,” said Mortgage Bankers Association chief economist, Mike Fratantoni.
Keep in mind that Oxford Economics’ forecast is half of the potential mortgage bloodbath predicted by Moody’s chief economics, Mark Zandi, who said that as many as 30% of Americans with home loans – or around 15 million households, may stop paying if the US economy remains closed through the summer or beyond.
We assume that a large percentage of Americans refusing to return to pre-pandemic consumption habits would have similar effects.
“This is an unprecedented event,” said Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania in comments last month. She also points out another way the current crisis is different from the 2008 GFC: “The great financial crisis happened over a number of years. This is happening in a matter of months – a matter of weeks.” (source)
These people do not need so much criticism, as deserving as it may be, but rather compassion, for many are going to lose everything. This is another reason why as I have reported there is going to likely be a sharp increase in homelessness, for if one loses one’s home, if he does not find another home, he as nowhere to go but to the streets and shelters.
If this prediction sounds like what happened during the Great Depression, that is correct, because what we are experiencing right now is not a “Great Depression”, but a “Greater Depression” that is and will by the time it has passed dwarf the Great Depression of the 1930s because there is far more financial exposure now than at any time in world history. The US is a giant, but as “the bigger they come, the harder they fall”, the fall of US financial power- engineered or accidental -will be catastrophic for many.
Try to help your neighbors and those who are suffering.
At the same time, make preparations for your own households. Work as much and as hard as possible, save money, pay down debts, and prepare for the future. Things are going to get very, very, very ugly, but those who work hard, who strategize, and who can plan for the future will not only survive, but likely come out richer and better off than that majority of people.