This post is part of AOL Money & Finance's Best & Worst in Money 2008 feature.
Consumers took it in the chin so many times this year, it's surprising many of us are still standing. Consumer credit for student loans, mortgages, car loans and just about everything else dried up completely by October. Oil prices soared, drained our pocketbooks, and then dropped like a stone after doing the damage. Food prices continue to soar as the prices for our homes and the value of our retirement funds plummet. So how does one decide, which is the most disturbing consumer trend? Let's look at our top four picks, presented in alphabetical order.
Americans with good credit struggling to get loans at favorable rates
While rates are starting to come down thanks to the latest bailout by the Fed, good deals are hard to find. Most banks are hoarding their cash and only lending it out to those with credit scores over 760. Even then, rates are not that favorable. You can only think about applying for a mortgage or equity line if you have at least 90 percent equity in a home that has probably lost value and, in most cases, you must have 80 percent equity to get a home loan. How can the U.S. stop the downward spiral in home values until credit is available for qualified buyers?
Homeowners whose homes are worth less than they owe the bank
Anyone who bought a home in 2005, 2006, or 2007 could be facing a mortgage underwater (they owe more than the value of their home). The downward spiral we've seen in house prices is expected to continue through 2009 and beyond. If people with mortgages underwater need to move and sell that home, they must come up with cash to get out of the loan. Others are stuck with adjustable rate mortgages that reset to levels they can no longer afford but can't refinance because they now owe more than the home is worth. This mess leads to only one conclusion -- foreclosures will continue to mount until house prices stabilize and start to recover. Even the most optimistic economists don't see a recovery on the horizon in 2009.
Plunging retirement accounts
Many people lost 30 percent or more in their retirement accounts in 2008. With many AAA rated investments gone bust, such as Lehman bonds, few escaped the carnage wrought by the 2008 financial collapse of Wall Street. Many retirees must choose to go back to work just to make ends meet. Near retirees are rethinking their retirement plans and putting off retirement for five or ten years, or maybe more. Even as the market finally starts to turn around, which likely won't be until at least the second half of 2009, recovering that level of loss will take years for most people.
Soaring food prices
While salaries remain flat and layoffs continue to mount, all families are faced with soaring food prices. Even though energy costs have plummeted since the price of oil fell, food did not follow suit. Food requires a greater percentage of a family's budget almost every month. The only choice people have is to chase the cheapest food prices they can find. At least now with gas prices dropping they can afford to travel a bit further to find the best deals.
So now it's up to you to decide which of these 2008 consumer trends is the most disturbing.
Lita Epstein has written more than 25 books, including the Complete Idiot's Guide to Improving Your Credit Score and Working after Retirement for Dummies.
Share the reasons for your Most Disturbing Consumer Trend pick in the comments, or let us know about any contenders we overlooked. Also be sure to see the rest of the Best & Worst in Money 2008.
Reader Comments (Page 1 of 1)
12-06-2008 @ 9:59PM
Michael said...
While much of this analysis is correct, even undeniable, it fails on the level of candidness. There are plenty of contrary views which the writer has failed to take into account. And the context is off: the very conditions that get people dreaming of an early retirement are whose which prevent it. A crisis, no doubt, but readers should invest -- and are constantly advised to invest -- on the basis of risk. You're 25, not much of that; you're 55 you should be safe. Much of the current panic arises from the late career crowd thinking they should get the same returns as the young. Big and safe companies failing: well, that's been the crowning glory of the US economy for ages. The best argument: be smart and don't whine. You want a world without risk? You'll lose the world in which you can make good money prudently. It was only six years ago, after all, when "the inevitable crisis of unbridled capitalism" had many thinking the government could do a better job.
Ask the French how well that assumption has been working out.
12-06-2008 @ 11:48PM
Ruchika said...
In my view, this has blown out of proportions. It had a cascading impact on almost everything now, something not seens in the past. This is the other extreme and will correct in 6 months or so.
12-07-2008 @ 1:58PM
Billie B said...
I am an optimist at heart, but I do see some troubled times ahead. If we all remember that when things look really bad; they definitely will get better.