You keep hearing about the "credit crunch". Credit has "tightened" since lending has gone from "incredibly stupid" to "kinda dumb". From 1996 to 2007 loans were made based on inflated values and future increases - not on ability to repay. People took first mortgages, second mortages and refinanced their home borrowing to 100% (or more) of the equity in their home to buy cars, motorcycles, vacations, appliances, etc... There are a lot of 30 year loans on cars and vacations out there.
The idea of having to have a minimum 20% down (or equity) in your home was considered out of touch. I have friends that have owned their home for 15 years and now owe more than its worth instead of being close to paying it off. They bought a house for $200,000 and refinanced or took home equity loans several times, the last refi being in 2007 for $360,000. They took the "cash out" amount and bought a Yukon Denali and a took a family cruise. Now the house is down to $290,000 and the Yukon is worth less than half what they paid for it. He's had job offers but can't take advantage of them because they can't sell the house. What's funny is this husband and wife are both teachers complaining about how little they earn.
The economy is contracting at an "amazing" rate because previously so much of it was being financed through paper gains that were never realized. Now not only can people not "borrow up" they have pay for what they already have - the days of borrowing the appreciated value out of your home are mostly over. If you heard the "consumer credit" borrowing rate had the largest contraction ever seen in a single month last month. People are "sucking it up" and going back to living within their means (some because they have to and others because they see the need to).
Credit is out there and if you are "credit worthy" its a great time to borrow. However, look out for some big jumps in interest rates in the next year. Even the Chinese have quit buying our T-Bills and the Fed is now buying them with money they are creating from thin air. This is the first time since the 1960s the Fed has done this and with trillions in annual deficits the reaction is going to be pretty hard. People are estimating home mortgages to be in the 8% to 11% range in 18 months - I think it may be closer the 14% - 20% range. It will make the current economic "pain" look mild in comparison.
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Today's Featured Article - Restoration Story: 1951 Farmall H - by The Red (John Fritz). I have been a collector of Farmall tractors since 1990 when I first obtained part of the family farm in Eastern Indiana. My current collection includes a 1938 F20, 1945 H, 1946 H, and the recently purchased 1951 H. This article will focus on what I encountered and what I did to bring the 1951 NEAR DEATH Farmall H back to life.
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