News all over the country lately seems to be celebrating economic recovery. Apparently, retail sales have picked up all across the nation while people go back to their old spending habits of old. However, is increased retail spending enough of an indicator to start up the party to celebrate the end of the recession? Some people are saying no, and for good reason.
While it is true that many more people seem to have more cash to spend then a year previously, it is also the case that fewer and fewer people are paying their mortgages this year.
While many people who have not been able to afford to make payments on their homes have been evicted during the recession, there are also a large number of home owners who are still living in these homes. Some home owners have not made mortgage payments in over a year and are still living in their home, paying only their utilities costs but living otherwise rent-free in their homes.
The benefit that the bank gains by not foreclosing on these homes is that the homes show up as being bigger assets for them; a foreclosed home has a reduced value. Another benefit for banks is that by not possessing a huge inventory of foreclosed homes, they artificially prop up the prices of homes in any particular area. A neighbourhood of foreclosed homes has a lower value than a foreclosed home in a neighbourhood of occupied homes, even if the residents aren’t paying their mortgages. Foreclosed homes need upkeep and maintenance, or they start to look sad and dishevelled; home owners, even if they’re not paying their mortgage, are likely to keep up a home and yard so that the neighbourhood doesn’t look distressed.
The benefits to a home owner living in a home without paying the mortgage are obvious. Most mortgage payments are over $1000 a month, and freeing up even a portion of that amount can give a resident enough financial freedom to purchase smaller ticket retail items. Across the nation, we’re seeing the results of having hundreds of thousands of home owners giving up on making mortgage payments by the increase in retail spending.
While increased retail sales are certainly part of the economic recovery picture, true economic recovery also requires people to pay for their mortgage or rent costs, to evenly put money back into the economy. We won’t see the end of the current economic slump until all of the financial areas have begun to heal, not just one at the expense of another.
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