Lemon Line: We’re not recession-proof
Vail CO, Colorado
The money for “sub-prime” lending is completely dried up. World stock markets are plunging on this perceived harbinger of economic free fall. The European, Japanese, and U.S. central banks are pouring money into the system to prevent a credit crisis. Consumer spending, which drives 70 percent of the U.S. economy (according to some financial analysts), is slowing and we are headed for a recession if not a depression.
What do these drastic headlines mean to Eagle County? Well, in the short term, affordable housing just got even less affordable. Which makes it that much more difficult to retain good employees, which in turn means that fewer services can be offered to the potentially dwindling pool of tourists arriving because of the credit crunch, which means that more of our struggling tourism support companies (practically all of us) will be competing for a smaller pie which means . . .
The Dr. Dooms of the world (there is a financial analyst in Hong Kong called Dr. Doom, who is contrarian, and has been preaching world meltdown for years) are declaring that the seven years of plenty are over and we are about to enter the seven years of famine. Actually, I have heard from good sources, that it is an anti-immigration plot to drive all the illegals out of the country by throwing the U.S. and the rest of the world into depression and putting everybody in the bread line.
Let’s get some perspective here. When we bought our first house in the late 1970s, we scrimped and saved for several years and borrowed from our parents to come up with the 20 percent down payment. We were overjoyed to get an interest rate of 9.25 percent. We sold that house two years later, but we had to finance our buyer’s Federal Housing Administration closing costs and points because they were getting a 16-percent interest rate on their mortgage. We bought our next house and were again happy that we could qualify with a two-income household for an interest rate of 11 percent. We then left the country for eight years and were astounded when we bought our house in Avon in the 1990s and qualified for an interest rate of 6.25 percent.
The past decade we have been bombarded by get-rich-quick schemes of 100 percent financing, interest-only gimmicks, 0 percent or low variable interest programs with little down, so we could flip our next project into the market, make a cool whatever percent and go and do it again. This is not a sustainable model.
Some solutions currently bandied about in Washington talk about bailing out the lending industry. Somehow, in the minds of legislators, Joe Q Public deserves these low-interest programs that basically amount to further government subsidies and higher costs. Why? Once again we the taxpayers get to bear the brunt of our hand-out, you-owe-me mentality, driven by corporate greed and a failure to take responsibility for our actions. The only slightly amusing consequence of this crisis is that European banks bought heavily into these pass-through schemes and must also ante up at the table.
There is going to be a correction in the lending market. Interest rates will go up. We will have to work harder to save money for real down payments, and we will be using less of the equity left in our homes to finance our businesses or remodeling projects.
Which brings us back to Eagle County. While our politicians and political parties squabble over who did what to whom, wasting valuable energy and resources over a purely political endgame, our economy is badly in need of diversification and development. We are heavily dependent on our tourists.
And while we can all philosophically agree that we want to preserve our county, unless we start to encourage small business, we will become a second-home community with no one to service it.
Restricting growth cannot mean limiting opportunities for entrepreneurs and the employees necessary to implement those businesses that will bring vitality and broaden the tax base of the county.
We need to be building the infrastructure that will encourage clean businesses, stimulate research and academic development, that will create higher paying jobs for people who can start to build savings accounts that can be used to buy the now less affordable housing.
Once again I have to say, less talk and more action from our political leaders to forge practical solutions would be a welcome change.
Heather Lemon of Eagle-Vail writes a biweekly column for the Vail Daily. She can be reached at email@example.com.
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