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The Tourism Industry: Betting the House?

Scott Vogel

If one more person informs me that the present crisis in residential mortgages stems from people using their homes as ATMs, I'm going to go postal. (For a group that supposedly got duped on a mass scale, they certainly did some fancy wheeling and dealing.) Anyway, it's been reported ad nauseum that homeowners typically spent these "withdrawals" on fancy cars, big screen televisions and, yes, exotic vacations.

And so you would expect destinations that depend on tourism for their livelihood, especially the exotic kind, to be getting a bit nervous as the subprime mortgage crisis deepens. These days, however, the World Tourism Organization -- an agency affiliated with the United Nations -- appears to be taking a page from the Bush administration and the Federal Reserve.

Consider the parallels:

From a September press release by the WTO titled "Tourism Growth Ignores Stock Market Crisis":

Broadly speaking, in spite of the trend towards more moderate growth, the U.S. economy remains strong.

President Bush, 10/5/07:

This economy is a vibrant and strong economy.

The WTO:

The recent stock market crisis, caused by the difficulties of the most risky segment of the U.S. housing market, has not at this stage had an appreciable effect on world tourism demand.

Federal Reserve, 9/5/07:

Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited.

Of course it can be argued that something calling itself the World Tourism Organization has, by definition, a vested interest in painting a rosy picture, as does the White House. And one doesn't go to the National Association of Realtors for an objective housing report.

By the middle of September, however, even the Federal Reserve had acknowledged that the mortgage mess was threatening to spill over into the larger economy. Hence the Fed's Sept. 18 and Oct. 31 reductions in interest rates. But the WTO has had nothing further to say on the matter, preferring to stand by its claim that "those experiencing difficulties in repaying their large mortgages [are] not, in any case, the most likely to travel, especially abroad, given their demographic and social profiles." It's interesting that these folks' demographic and social profiles didn't preclude them from buying lavish houses, but let's leave that aside.

More to the point, is the travel industry sticking its head in the sand? Is it just a coincidence that Washington residents are suddenly more interested in regional travel destinations these days (i.e., places they can drive to in four hours or less) than havens more exotic? Couldn't it mean that consumers are pulling back on discretionary spending, fearing that the economy will spiral downward along with home prices in Manassas? Or maybe folks are staying close to home because of the weak U.S. dollar (the value of which fell further after the September and October interest rate cuts). As Washingtonians are discovering, vacations to Paris and London have never been so expensive.

How is the "turmoil in financial markets" affecting your travel plans, if at all? And should the industry itself be worried?

By Scott Vogel |  November 12, 2007; 12:45 PM ET  | Category:  Scott Vogel
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The housing mess is effecting our travel by the way it is causing the dollar to plunge in respect to other currency. With the dollar now $2+ to the pound and at records to the euro, it will be a while until we travel to Europe again. We will travel in the states.

Posted by: Tom | November 12, 2007 2:15 PM

Travel will always be a priority for me, and now more than ever I will be looking at locations that are more affordable, such as Latin America and Eastern Europe. But my mortgage and vacation budget have always been separate, so if anything, the weak dollar affects where I travel but not if.

Posted by: Meg | November 12, 2007 5:13 PM

The mortgage mess is a repeat of the problems on 1990-92; 1978-1982; 1973-1975. But that's just during my lifetime. I hear 1929-1940 was no picnic either. Somehow travel has only increased. By the way, the stock market has a sharp decline every other year.

Posted by: Folger | November 12, 2007 6:47 PM

I have a commission job in the etail industry. Our business has dropped precipitously. As a result, my income is down deeply and so, we won't be trvelling in the foreseeable future.

Posted by: mike | November 12, 2007 8:09 PM


Maybe the people who spent their second mortgage money on travel is a small amount. Probably most of them spent the money on remodeling their house instead.

Posted by: Chuck | November 13, 2007 6:52 AM

The house sales have decreased because the Real Estate Agents and the Government turned to greediness instead of a fair deal. This mess will only worsen if prices remain as high as they are now.

Posted by: Adrian | November 13, 2007 10:39 AM

Las Vegas is toast. Macau and world-wide deflation will continue to make Vegas casino revenues decline, unless Americans try their luck for a last futile chance.

Posted by: Mark | November 13, 2007 12:37 PM

Someone please tell me what I have to gain by volunteering to undergo the torture that is current air travel to get to $400/day destinations I can't afford? Hell, I can't even ski cheaply in Canada anymore.

Posted by: Sasquatch | November 13, 2007 5:59 PM

My family and I can afford to travel - even to Europe - because we're savingp nearly $5,000/month renting!

Posted by: so urbane | November 13, 2007 7:39 PM

Urbane, You are saving close to 60K a year by renting? Just curious, are you saying the property taxes are that high? Or your rent is very reasonable given the size and location of the property? Has the landlord paid off the mortgage and so is only responsible for the taxes, which is why your rent maybe so reasonable?

For me, since I live in an apartment, it is really just the weak dollar that affects my travel plans.

Posted by: rja112 | November 14, 2007 2:08 AM

"How is the "turmoil in financial markets" affecting your travel plans, if at all?"

Not my plans, but the results: I'm teaching in Korea this year and watching the dollar slide with unpatriotic glee. If this keeps up, bye bye student loans.

Posted by: aleks | November 14, 2007 9:39 AM

Very interesting comments here, especially as the mortgage mess appears to cut both ways. Those who've saved money by not having mortgages have more discretionary capital, while homeowners seem, in some cases, to have cut travel expenses dramatically. But it's interesting too to consider how many of us are willing to give up lots of other luxuries (the TVs, the cars, etc.) in order to preserve our travel possibilities.

Posted by: scott vogel | November 14, 2007 9:41 AM

I totally agree w/Tom. I remember cruising to Europe, Africa, etc., in the 60's, and even Cuba in the 50's when I was a teen.We often heard, "Well, you Americans have it really good."

Personally, I'm angry that I feel like a pauper now, when it comes to traveling abroad.

We own our home, two cars, and we're not suffering. Well, that is my husband isn't as he doesn't like to travel, but I need to
decide just how desperate I am to go some-
where, or would I be wiser to stay home until I die, and just leave my money to my sons?

Perhaps, I might fare OK,in South America, or Burma, but I can't bring myself to spend what it will cost to travel again to Paris, England, the Scandinavian countries, etc. Boo hoo!

Oh well, I'm still healthy, which is more important---I guess.

Posted by: QueenBee | November 17, 2007 1:33 AM

We pay rent in the SF Bay Area, have no debt, share a car (we live on the train line too), and are able to put away $5k per month (this year). The ho.e we rent would cost 65 percent more per month to own, which would stretch us to the limit. But renting makes us the envy of friends who cannot travel or eat out. We're the only ones our age we know that have our home totally furnished magazine spread quality, all bought with cash.

I read when I was young an article about having debt equal "living beyond means", so I've never had any, save for equipment for my self-owned business. It has helped us really cherish what we save up to buy and spend $ on, and amass enough cash to survive a couple years with no income, if need be.

In the end we have come out looking like winners, not the losers mortgage brokers and credit issuers would like society to believe. Paying for things with cash is definitely a smart - but rare - lifestyle.

Posted by: no-debt renters | November 17, 2007 10:26 AM

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