Minimum Wage and Home Ownership
What is doubling the minimum wage in some parts of the country going to do for home ownership? This is my prediction and only my opinion. I may be wrong and I may be spot on but the way I see it is this:
For a brief period of time the doubling of the minimum of the wage is going to be a boost to home ownership in those areas that the new wage is implemented. Following that brief period, I would say about a year, we will see a bust with many of those new home owners going into foreclosure. Here is why.
For many families with two wage earners the new found income will boost them to a level making them eligible for a home loan that has previously been just out of reach. Just like most every home buyer they will spend the maximum they can to get the most house they can, we all do it. I’m going to predict that most will make an honest go of it for 3 to 6 months… then the can of worms opens.
The can of worms is this: Time has proven, over and over, that when the minimum wage goes up everybody up the chain also asks for and usually receive an increase in their wages. Vendors will increase the prices of their products as the cost to produce their products or services has also gone up. Simple logic dictates that if your cost to produce a product just doubled you will no longer be able to produce that product without raising the price on it.
Products will cost more. Who does that (inflation) hurt the most? The lowest wage earners and those on a fixed income always suffer the most.
Add into this time proven fact is that companies cope in one of three ways.
1) They close. Thus there will be more unemployment. More home foreclosures.
2) They cut staff. Thus there will be more unemployment. More home foreclosures.
3) They automate, eliminating human help. Thus there will be more unemployment. More home foreclosures.
The happy new home owners that got the loan because of the doubling of the minimum wage are likely to find themselves out of a job, with less buying power than ever, and in arrears on their house payments in just 6 months to a year.
This is just my prediction but time has proven this theory over and over again. I say look for the next housing bust in about a year from now… just in time for Christmas 2016.
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