On a recent Sunday afternoon, as my wife and I were leaving our home, a lady pulled up in a car and started to put a "For Sale" sign on our front lawn. I shouted out that I thought she must have the wrong house. She laughed and assured me that the other side of the sign had an arrow pointing to a house further down our street, which she was trying to sell.
The lady was a real estate agent, so I took the opportunity to get an update on the housing situation in our neighborhood.
"How are houses around here selling?" I asked.
"In this pocket," she answered, "better than average."
"Well, that's good," I responded. "How much have home values declined?" was my next question.
I was totally unprepared for her answer.
"Last year they dropped 19 percent! This year they are expected to go down a further 25 percent."
We bought our home exactly two years ago. I already knew that the average price of homes in the Lansing, Michigan, area dropped 11 percent in the first 12 months we were in our home. Our local newspaper confirmed what the agent said about the second year—in 2007 they dropped a further 19 percent and are expected to go down by 25 percent this year. This means that, by the time we have lived in our house three years, it will have lost about 50 percent of its value—half of what we paid for it.
According to the Lansing State Journal, in the fourth quarter of 2007 Lansing was the worst-hit urban area in the country ("Prices Cut, but Homes Unsold," Feb. 15, 2008).
We realize that we are not the only people in America who are losing. Hundreds of thousands, even millions, of couples find themselves in a similar situation. It's also the case that there are still some areas of the country where home prices continue to rise, so the situation across the United States is uneven. Other countries are also affected by the slump in house values.
In the United States, last year was the worst year for housing since 1932 at the height of the Great Depression.
Not the only negative
Housing is not the only negative in the U.S. economy at this time. NBC's Brian Williams highlighted four big problems on his nightly news program Feb. 26.
"A long string of rather scary indicators today . . . ," began Mr. Williams.
In elaborating, he listed four negative economic indicators:
"Inflation heading sharply higher . . . Home prices sharply lower . . . Oil prices setting another record . . . Consumer confidence plummeting . . ."
The nightly news failed to mention the other big financial negative news of the same day—the U.S. dollar falling lower, crashing through the psychological barrier of over $1.50 to the euro.
The following evening, the BBC News' Katty Kay quoted the chairman of the U.S. Federal Reserve, Ben Bernanke, who had earlier updated Congress on the economic situation: "The U.S. economy is faltering and something must be done about it." Ms. Kay added, "How to fix it, though, is the hard part because there are so many things going wrong at once."
An EU finance minister a few weeks ago criticized the U.S. federal government, blaming the world's financial crisis on its reckless overspending. A few hours later, the Bush administration announced the economic stimulus package, which will only add to the deficit, causing recurring seismic shockwaves around the international financial markets.
The upcoming U.S. election is not going to cure anything, with candidates making careless promises of further deficit spending, either on universal health care or stronger defense.
Overspending by the federal government only worsens the financial crisis confronting the American people. Deficit spending drives the dollar down. In turn, this raises the cost of oil (gasoline) and other commodities, thereby driving up the rate of inflation. Additionally, we are passing on the debt with added interest to our children and grandchildren, leaving them with a burden they will not be able to bear.
Prepare for challenges ahead
What can Americans, Britons, Australians and citizens of other Western countries do to prepare for tougher times ahead?
1) Before buying a house, count the cost.
This is a biblical principle. Jesus Christ said, "For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it—lest, after he has laid the foundation, and is not able to finish it, all who see it begin to mock him, saying, 'This man began to build and was not able to finish'" (Luke 14:28-30).
It's still that way in much of the world. When a man has money, he will buy land. He will start building when he comes into more money, but won't finish the house for many years.
In the Western world, we borrow from banks to buy houses that are already built. Many banks lend 100 percent of the money required without carefully checking to see whether the borrower can actually afford the loan.
These loans, known as "subprime mortgages," are a primary cause of the current housing crisis. Encouraged by banks and other financial institutions, themselves under pressure from the government to make more loans to those with lower incomes, people borrowed more than they could afford to pay back.
It is a very good idea to make sure that you plan your budget wisely, ensuring that you have enough to make that monthly mortgage payment. You shouldn't assume that your income will increase. Rather, plan for the possibility of a decrease or even a temporary loss of job.
2) Get an education or qualification and work hard.
Not everyone is "book smart." But most people are smart in at least one area. Those who are book smart should go to college and earn a degree that can ensure a good career. Those who are more skilled with their hands should make sure they get qualified as a mechanic, plumber, electrician or other professional.
Realize that any career can be affected negatively by a slump in the economy, but by becoming qualified you are doing what you can to ensure steady employment.
However, a qualification is meaningless if we don't work hard. We should all heed the advice of King Solomon: "Whatever your hand finds to do, do it with your might" (Ecclesiastes 9:10).
Also: "Go to the ant, you sluggard! Consider her ways and be wise, which, having no captain, overseer or ruler, provides her supplies in the summer, and gathers her food in the harvest" (Proverbs 6:6-8).
Ants are diligent, always working hard, always preparing for what's ahead. We need to be at least as smart as ants!
3) Beware of borrowing.
The United States is the most indebted nation in the world—indeed, the most indebted in history. According to a recent report on the BBC World Service, Americans lead the world in personal debt, with Britain and Australia in second and third place.
Former French President Charles de Gaulle famously refused Britain entry into what was then the European Common Market, dismissively referring to the Anglo-American economic model as "the Anglo-Saxon debtor countries." Accumulated debt has, of course, given these countries faster growth rates than the Continental Europeans in the past, but perhaps that is now going to change as the debts are finally catching up.
Whereas countries that use the euro are forbidden to overspend by more than 3 percent, the U.S. government routinely overspends by more than twice that percentage. With the economic stimulus package, a further 1 percent has been added to that debt load.
But governmental debt is only part of the problem. Personal debt is also at an all-time high, and Americans and Britons, in the main, are likewise addicted to deficit spending at the household level.
Money Week magazine stated: "We [in the United Kingdom] have even higher personal debt levels" than Americans (March 21, 2008, p. 7). "What does this mean for the UK? . . . The UK is vulnerable to all the same problems as the US. Many of our own banks have heavy exposure to the kind of toxic debt that has inflicted such carnage on US balance sheets. Our house-price bubble was even worse than America's, and our consumers more indebted (UK consumer debt stands at 175% of disposable income, compared to 138% in the US)" (p. 30).
Now that credit has become harder to obtain, the result will likely be a recession, with the economy going backwards for a while.
Americans, Britons and people in other countries similarly affected by the credit crunch are going to have to learn to spend less.
An item on a television news program in February highlighted auto loan debt. Some people "have" to get a new car every year or so, whether or not they have the money. Before they have paid off one car, they buy another new one, raising the outstanding amount from their earlier loan.
Some people with average incomes have car payments of more than $600 a month! No wonder so many are defaulting on their car loans.
Others are addicted to other material possessions. If not cars, it might be electronic equipment, cell phones, DVDs or video games. Such addictions are nothing less than coveting, the breaking of the Tenth Commandment (Exodus 20:17). People want what they can't afford and get themselves into deep financial trouble because of it.
Sitting in a restaurant recently with my wife, we noted that the number of customers remained the same in spite of the dire economic situation Michigan finds itself in and increased restaurant prices. Where do people get the money? The vast majority simply pay with a credit card, borrowing against tomorrow.
On the brink of a recession, the less debt a household has, the better prepared they are to weather the storms that lie ahead.
Our suggestions are: Stay out of debt. Pay down debts you already have. Live within your means. If you don't have the cash to pay for it, you can't afford it.
4) Stay close to God.
Americans are learning, as many around the world already know, that no human government or man-made economic system can provide total security, financial or otherwise. Only God can—so it's important to always stay close to Him.
Jesus Christ understood fully the folly of looking to material possessions for security.
"Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also" (Matthew 6:19-21).
Another important factor in sound financial management is the biblical principle of tithing. A tithe is 10 percent of a person's increase.
Note the following words and apply them to America and other Western countries during these difficult economic times. "Will a man rob God? Yet you have robbed Me! But you say, 'In what way have we robbed You?' In tithes and offerings. You are cursed with a curse, for you have robbed Me, even this whole nation" (Malachi 3:8-9).
In the next verse, the nation is promised great prosperity if it returns to God, which includes obeying the instruction to tithe. As it is with nations, so it is with individuals. (For further information about tithing, download or request our free booklet What Does the Bible Teach About Tithing?)
A house is just a physical possession like any other. It's been inspiring to see, when natural disasters strike and people lose their homes, how they pick themselves up and move on, building again and looking to the future. Take note of the principles given above and try to weather the growing financial crisis. Other generations have survived. We can too. GN