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Rising concern about home values and mortgage payments is causing more buyers to slam the brakes on new car purchases. (http://money.cnn.com/2007/08/21/news/companies/autosales_mortgage/index.htm?postversion=2007082115)

http://www.cleanmpg.com/photos/data/501/Honda-Toyota.jpgChris Isidore - CNNMoney - Aug. 21, 2007

Even the juggernaut(s), Honda and Toyota are feeling the financial pressure of our financial problems with July 07 sales weaker then July of 06.

NEW YORK -- Already-battered U.S. auto sales could be the next victim of the problems with mortgages, declining home and stock prices as potential car buyers delay purchases due to uncertainty.

Industrywide U.S. auto sales in August could be off 10 percent from a year ago, according to an early read from sales tracker Edmunds.com. That follows July sales that were 19 percent below year-earlier levels.

Jesse Toprak, executive director of industry analysis for Edmunds.com, said that the downturn in home values and credit issues that were seen in the July numbers could be an even bigger factor this month.

"I think the issue is becoming more pronounced," he said.

Sales weren't just weak at domestic automakers, such as General Motors, Ford Motor and Chrysler Group. Year-over-year sales fell in July at Toyota Motor and Honda Motor as well. Many forecasters are cutting full-year auto sales targets in the face of these weak summer sales. And some experts say the turmoil in housing could throw even more dirt in the gears … http://money.cnn.com/2007/08/21/news/companies/autosales_mortgage/index.htm?postversion=2007082115

They often say housing sales indicate if we are about to have growth or recession.

I think America just made credit too easy and got ourselves into this situation....

And due to the fact that a lot of people bought cars with home equity loans, they're now upside down on both their mortgage and their car loan.

I think America just made credit too easy and got ourselves into this situation....

Bingo. They were giving those horrible "Adjustable Rate Mortgages" (ARM), which the average American doesn't seem to understand, to an economic class that would normally never come close to qualifying for a home loan. This not only had this class of people overextended, but it created an artificial and totally temporary housing boom.

Then, without batting an eyelash, they raised the rates on the ARMs through the roof, and then had the audacity to act shocked when people defaulted.

The issue was exacerbated by other financiers offering "interest only loans", which the average American doesn't seem to understand any more than they grasp ARMs, and which a lot of the people that were about to default on their ARM saw as an escape route, not realizing they were going further down the spiral.

So, now you have billions of dollars paid by a poorer class of folks, all with nary a penny gained in equity, and literally hundreds of thousands homes for sale, with no possible buyers.

What I find the most distasteful in all of this is how "the market" calls this a loss, or a downturn, or an omen of a recession. They all knew it wasn't real or sustainable when they built it, so there's no way they should be surprised when it collapses.

It's like an echo of the Dot Com Boom with an aftertaste of Enron thrown in.

Yup, you guys nailed it. I can only add that I feel really horrible for these people who are defaulting, even if they should have known better than to take out these loans in the first place. Walk into 9 out of 10 foreclosed houses on the market and it's immediately apparent that the previous owner was not living well, and probably for some time :( . And there are a lot of foreclosed houses on the market around here.

There seems to be a lot of over-sized Americans in over-sized houses, driving over-sized SUV's, with under-sized bank accounts.

Harry

It smells like a liquidity crisis to me. The economy will take a beating for a little while but if the Fed loosens up policy a bit the credit crunch shouldn't stay bad. Other economic fundamentals seem to be negative at the moment though....

I feel sorry for the people involved, but nobody made them take those loans so they could keep up with the Joneses.

Bingo. They were giving those horrible "Adjustable Rate Mortgages" (ARM), which the average American doesn't seem to understand, to an economic class that would normally never come close to qualifying for a home loan. This not only had this class of people overextended, but it created an artificial and totally temporary housing boom.

Then, without batting an eyelash, they raised the rates on the ARMs through the roof, and then had the audacity to act shocked when people defaulted.

The issue was exacerbated by other financiers offering "interest only loans", which the average American doesn't seem to understand any more than they grasp ARMs, and which a lot of the people that were about to default on their ARM saw as an escape route, not realizing they were going further down the spiral.

So, now you have billions of dollars paid by a poorer class of folks, all with nary a penny gained in equity, and literally hundreds of thousands homes for sale, with no possible buyers.

What I find the most distasteful in all of this is how "the market" calls this a loss, or a downturn, or an omen of a recession. They all knew it wasn't real or sustainable when they built it, so there's no way they should be surprised when it collapses.

It's like an echo of the Dot Com Boom with an aftertaste of Enron thrown in.

Great and sadly truthful post. The era of easy credit is over, and now people are getting burned by it. The only reason to get an ARM (IMHO) is with the intent to sell before the ARM adjusts. That is my plan right now as I'm about halfway through the 5-year fixed period on mine (with roommates paying me rent ;)). If the real estate market continues to suffer due to widespread defaulting, well, then I'll have a problem on my hands. But getting an ARM (or worse, an interest-only) just because of the lower payment is a terrible idea. :(

I'm glad that when we bought our house last year we went with a 30-year fixed loan. It's nice to know what you're mortgage payment will be year after year.

I'm glad that when we bought our house last year we went with a 30-year fixed loan. It's nice to know what you're mortgage payment will be year after year.

I did the same thing, Michael -- and I'm also glad!!!

I hate debt.

I just picked up a foreclosed house, I got a great price on it. But I can't help feeling bad about the previous owner who lost the house because it's pretty nice. I have a 7 year ARM and I'm definately going to sell it after the 2nd year I'm here. I don't want to end up like these people. :(

It smells like a liquidity crisis to me. The economy will take a beating for a little while but if the Fed loosens up policy a bit the credit crunch shouldn't stay bad.Central banks of the world recently (last week) injected $300 billion into the world economy, the largest amount ever so injected. The Fed did so by cutting the discount rate (the interest rate charged to banks who borrow from the Fed). I don't claim to fully understand all of this, but I know that this inflation of the money supply, monetary inflation, will find its way into the price of everything, price inflation. So the Fed basically bailed out large mortgage banks who were playing fast and loose with the rules, and who gets to pay for it? The same people who are getting severely burnt by ARMs, and everyone else. By the way, the Fed's primary duty is to protect the currency, i.e. keep inflation in check. Since the Fed was created in 1913, the USD has lost 97% of its value. And something like 30% just in the last 5 years, due in no small part to the high cost of the War on Terror(tm). We're on the brink of a total collapse of our currency. All fiat currencies must die. The only question is, will it be a slow, controlled, relatively painless death, or a sudden implosion that sucks everything else down with it? I have no faith in the Fed, given their track record. They create bubbles (stock market, dotcom, real estate) and when they burst, they squirt money into the system to prevent a recession. This increases inflation which helps the middle class go broke. This cycle can only continue so long. What happens when a large number of consumers become unable to pay for even basic necessities due to insurmountable debt and skyrocketing prices? Fiat money is debt, and the consumer must spend or there is no fiat money. Of course, we could go back to the Gold Standard, but then the government wouldn't be able to continually expand itself, have a standing army, and occupy every country that has a lot of energy.

The United States today is eerily similar to the Roman Empire in its twilight.

Hi Fenrir:

___You make some very good points wrt monetary policy but remember with our continuous deflating of our $, there are a whole lot of very well off people in this country. A lot on the bottom as well but many in a very good situation. The worst part of it is our addiction to the black goo is just as much a problem if not more for the $ as the Fed’s monetary policy. The Canadian’s are receiving so much of the green stuff from expensive oil imports they don’t know where to begin to spend it all! Same for the Venezuelan’s, Saudi’s, Kuwaiti’s … Iran would love to get off the $ std. and get paid in Euro’s as it is a very smart financial thing to do. If I were running a huge oil exporting country, I would be turning those $’s in for Euro’s and Canadian $’s before the greenback reached my hand given the way our country wastes natural resources and could give a **** about its currency.

___Good Luck

___Wayne

I did the same thing, Michael -- and I'm also glad!!!

I hate debt.

we did a refinance a couple of years ago for a 15 year loan, at 4.75%. we pay biweekly and have added extra to pay off the principle faster. one of the few smart things we have done.

this affects my job, also, since i work for a company that wholesales cabinet hardware. we are closely connected to the construction and new home industry and have seen a downturn in some sales, and closing of shops that were doing marginal work.......

this affects my job, also, since i work for a company that wholesales cabinet hardware. we are closely connected to the construction and new home industry and have seen a downturn in some sales, and closing of shops that were doing marginal work.......Yeah, I don't know many sectors that won't be touched by this in one manner or another. But fear not.. the Fed is bailin' them out as we speak.

What really lit my fire was watching a financial channel last night talking about one of the banks that got a big bailout check. Well as soon as they announced that the check cleared, there stock (already seriously deflated) went through the roof. The bailout made the bank stock effectively a government bond. So now Uncle same is holding up both sides of the Mortgage market. Both the bonds that banks depend on to make those "Crazy Ed's Mortgage Deals of the Century" and the fact that they are now backing the stock that the banks depend on to raise capital.

Great precedence guys! Follow the rules or well give you money! Thought all those guys on Capitol Hill fixed this type of stuff back in the 80's with the Savings and Loans bail-outs.

Hey back to Autos.. is GMAC still part of GM? Indirect way for GM to get a cash infusion, claim GMAC is defaulting and siphon off some of that good 'ol bailout money.

11011011

we did a refinance a couple of years ago for a 15 year loan, at 4.75%. we pay biweekly and have added extra to pay off the principle faster. one of the few smart things we have done.

this affects my job, also, since i work for a company that wholesales cabinet hardware. we are closely connected to the construction and new home industry and have seen a downturn in some sales, and closing of shops that were doing marginal work.......

We are still trying to finish off the debt from the wedding/honeymoon but as soon as that is done we'll be overpaying to chunk down at the principle as well. I wish our rate was as nice as yours!! The way the market is going I may not get the chance for a while.

The weakness of the US $ was ridiculously apparent over in EU when we went for our Honeymoon for a couple of weeks. OUCH. Especially in London. :eek: I really don't understand this abominable practice of flooding the economy with more paper and diluting value. As mentioned above it is the same issue as raising minimum wage -- all that ever happens is a short couple of weeks of reshuffling and suddenly the base price for EVERYTHING has been raised to match the new rate. Result? Everyone pays a larger percentage of what they make for everything and consequently are able to buy less than before.

Just look at the price for housing -- my folks bought a NEW house for double their anual salary back in '78. I bought a 16yr old house for almost 5x my salary last year. What the heck??? It used to be possible to buy a new (cheap) car on a summer's wages. No more. Most people seem to live with ungodly levels of debt on CC and school loans. I'm not typical in trying to pay for things only with money I actually have, and I'm still wondering how the heck I'm going to survive this trend...

Hi Sean:

___You are going to survive because your heads on straight!

___About homes … My Grandparents lived in a 900 sq. foot 2 story in Iowa and as a child, I thought it was huge. I passed by there about 15 years ago and realized just how the pre and post depression members of the US actually lived. I could live in a 900 sq. ft. home with ease but I personally wouldn’t want to knowing what we have at our disposal today? As times really get tough however, I could see a renaissance of smaller homes and much smaller footprints. I am sure Asians of every economic persuasion know all to well about wants vs. needs or a presumed std. of living vs. an actual one. Because of the $’s weakness over the past 15 years, foreign entities of every sort are slowly compiling anything of value in this country because there is so many $’s floating around and not much else worth purchasing? The only bright part of this cloud is that just wait until the European’s and Asians start purchasing speculative land as well as the occasional summer/retirement home here because their own is far to expensive in US $’s terms all because we have absolutely whored out our currency. These things have a way of balancing themselves out but not without some god awful pain to the lower and middle rungs of society as a whole :ccry:

___Good Luck

___Wayne