As More US Retailers Fail, Malls Could Be Next Victim

The dismal holiday shopping season may sink some retailers and could take down some U.S. malls struggling with rising vacancies, softening rents and their own large debt loads.

"This is probably going to go down as the worst season in history as far as retail sales," said Victor Calanog, director of research for real estate research firm Reis. "The difficulty of ascertaining what the effect would be at the property level is because we're already heading toward a train wreck."

At the end of the October, the International Council of Shopping Centers (ICSC) forecast that national chains would announce 6,100 store closings in 2008 and 3,100 in the first half of 2009.

It was predictable that we would have trouble, because some people were living off of money they took out of their houses in refinances.

People living within their means would certainly have been upset at losing so much money in the market (i know I was), but they wouldn’t have had to call about a refinance, if they were living within their means already.

I could still refinance my house if I had to, because I didn’t refinance and take out money when it ran up in value, so I still have significant equity even though my house dropped by 40% like everybody else’s house.

And frankly, I don’t think the 401Ks would have fallen as much as fast if people hadn’t been spooked by the actions of the government.

I think you're a little too quick to judge.

For example, there are many people on fixed incomes who are living within their means and can continue to pay their mortgages. Yet with their wealth disappearing through the stock market crash, of course it's only prudent for them to try to reduce current expenditures as much as possible, including through exploring options to reduce their monthly mortgage payment through refinancing.

Also some people living within their means nevertheless "had" to buy a house within the last five years, and even if they exercised caution in both the purchase price and the downpayment---in fact, if they actually did what used to be the wise thing and put down 20%, they really are screwed, forever---through no dereliction on their part, they now cannot refinance their home. This is a financial restraint they have never had before, primarily because they did in fact live within their means and make wise choices.

Now, for the first time, they do not have the financial agility their wise choices had always afforded them previously. That doesn't feel good. They will stop spending.

Since mortgage rates are at 4.75%, there's no reason why you shouldn't refinance if it would save you money now and in the long-run. That shouldn't be interpreted by anyone as you "not being able to live within your means." Go for it.

It was predictable that we would have trouble, because some people were living off of money they took out of their houses in refinances.

P.S. I simply disagree that this was the cause of the problem or the eventual contraction in consumer spending.

This all started in the mortgage world and it's there that it will have to be solved.

It's not the fact that people were spending money they took out of their houses that predicted trouble, it was the fact that, for all practical purposes, houses stopped being bought and sold for reasons that had nothing to do with consumer spending.

Yes, there would be a subset of people who bought houses in the last 2 years, financed 75% or more, and are paying more than the current rates.

But if they could afford their mortgage, they aren’t forced to refinance now. It would be nice if they could lower their interest rate — the mortgage company already lent them the money and already knows they are upside down — but they don’t HAVE to refinance.

Most of the people who have to refinance are caught because they did adjustable rate mortgages, and most people who are upside down are so because they refinanced earlier to take out more money from their houses, usually to spend on other things than fixing up their houses.

Now, we can blame government — the tax code favors taking mortgages if you need to borrow money. IF the only reason you took additional money out in a mortgage was to add value to your house, you would tend to stay out of trouble since your house would be worth more. But why not borrow against the house to buy a car, since the odd tax code gives you tax breaks for the mortgage but not for the car loan?

If you look over the last 10 years, you can see that each year, we spent more of our future — meaning people spent more money that they weren’t expecting to earn until later and later.

At some point, we were bound to get so far ahead in our spending that people simply couldn’t borrow any more money. In some ways, it took TOO long, because lenders got careless and lent money long after it was prudent to do so.

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