I'm no econ guru, but from what I've read the subprime mess has a direct effect on the gigantic corporations like Citigroup and Countrywide and some others who have put a lot of their eggs into real estate and are taking humongous losses, and the aftereffects fudge up Wall Street quite a bit. I've read it affects the consumer price index, inflation, GDP, strength of the US Dollar, and some other things. And creditors are more "paranoid" about extending new credit (as well as being very sensitive/watchful to those who currently have credit with them) so that they don't have to accumulate more multi-billion dollar quarter losses.
I don't own a home either but from what I've read, the mistakes of others still have some effects on those who currently have nothing to do with a mortgage. I'll stop writing and defer to those who are way smarter in econ than I...
Yep, it literally impacts each and everyone of us.
Thanks to the mistakes of the Fed, the lenders, borrowers and the home builders, each and everyone us of now have to deal with the ramifications.
A few things you alluded to hit the nail on the head:
- lending standards have changed dramatically now (they should have never been so loose in the first place) and banks are now charging more a premium on their loans (in order to make up for previous losses and prevent a recurrence of the credit crisis)
- the US dollar continues to weaken and has fallen off dramatically since the Fed started cutting rates again back during the summer. Since all commodities are paired to the US Dollar, as the Dollar goes down in value the price of oil (been to the gas pump lately?), gold, wheat, corn, metals/steel, etc etc all continue to go up in price. In essence everyone of those dollars you have or make are now worth less in value.
- In addition, even if you don't have a subprime loan, or don't even own a home.. now that people are having to foreclose on their homes and more people will be renting, the prices of rent now have to catch up in ratio to the property values.
- Now that housing prices have shot up so much over the last few years (beyond what job growth or population demands can support), essentially every price from that point on below the peak will look "cheap" to a lot of people. In essence, a lot of people will be trying to buy houses with falling values and not even realize it.
- While the Fed is indeed lowering interest rates, that doesn't necessarily mean rates that you are able to get a loan at will go down as dramatically as people expect (goes back to point #1)
- I don't know if you have any student loans, but again, lending rates come into play here. While the Banks/lenders involved in the subprime mess are hurting, Sallie Mae isn't doing that much better. Some of those people getting subprime loans were coming out of college/grad school/etc or have had long standing student loans. Sallie Mae is having to deal with defaults on those loans as well.
- Housing and Consumer spending make up large chunks of GDP. Those sectors are slowing. If they slow enough that means we could possibly have a recession (negative growth/GDP --> less jobs are created, people are laid off, see less wage growth, etc --> =stress). Even if you want to put that into medical terms... stress usually brings about illness more often, especially mental illness.
- Last but not least, the rich have gotten far richer. All those high level employees at the bigger banks have made a killing of this mess. Their bonuses in recent years have been absurd. They basically made poor decisions, took advantage of giving people loans who had no business getting loans in the first place, and ramped up profits as a result. Now when it comes time to taking the fall for it, these companies can just write down the losses while the little guy is hurting.
