In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse

Yes, we are in a balance sheet based, real asset depression. If you
take a look at it from an empirical perspective there should be no
surprise in this statement, but since most derive their information from
the mainstream media media and the sell side of Wall Street (both of
whom have a preternatural proclivity for the positive spin) this may
come as a bit of a shock to a few. Let’s ponder the term “depression” as
outlined in Wikipedia with some Reggie edits:

In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturnrecession, which is seen by economists as part of the modern business cycle. than a

Well, we have had a severe downturn in real estate in much of the EU,
the middle east, the UK, Japan, and definitely the US. See “The
Inevitable Has Finally Been Admitted In Europe: The Macro Experiment
Has Ignited Inflation Without Commensurate Growth & Rates Will Spike” for a series of graphs that compare real estate markets in several of these countries. [Note: The chart below has a typo that was carried over from the Japanese CRE chart, which is down 72%.]

Depression: Considered, by some, a rare and extreme form of recession, a depression is characterized by:

its length (it’s been almost 5 years to date)…

by abnormally large increases in unemployment…

Reference Are the Effects of Unemployment About To Shoot Through the Roof?:

UNEMPLOYMENT INSURANCE DATA FOR REGULAR STATE PROGRAMS

and falls in the availability of credit—
often due to some kind of banking/financial crisis, shrinking output—as
buyers dry up and suppliers cut back on production, and investment,
large number of bankruptcies—including sovereign debt defaults, significantly reduced amounts of trade and commerce—especially international, as well as highly volatile relative currency value fluctuations—most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession.

Referencing:

• Is Another Banking Crisis Inevitable?
• The
  Coming Interest Rate Volatility, Sovereign Contagion, Geo-political
  Unrest & Double-Dip Recessions: Here’s The Answer To Valuing Global
  Real Estate Through This Mess
• ECB
  Swallows Massive Portuguese Bond Losses As It Is Clear That The Third
  State Will Soon Join The Bailout Brigade – Haircuts, Here We Come!!!
• The
  Inevitable Has Finally Been Admitted In Europe: The Macro Experiment
  Has Ignited Inflation Without Commensurate Growth & Rates Will Spike
• Re: B of A – With Banks Being Forced To Admit The Inevitable Truth, How Long Will It Be Before Fundamentals Rule The Day Again?
• I Warned That Banks Will Soon Be Forced To Walk Away From Homes… Guess What!
• FASB Appears to Have Bent Over For The Final Time & Accuracy In Financial Reporting Dies An Ignominious Death!!!
• Less
  Than 24 Hours After My Warning Of Extensive Legal Risk In The Banking
  Industry, The Massachusetts Supreme Court Drops THE BOMB!

There is no agreed definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research^[1]
Generally, periods labeled depressions are marked by a substantial and
sustained shortfall of the ability to purchase goods relative to the
amount that could be produced using current resources and technology (potential output).^[2]
Another proposed definition of depression includes two general rules:
1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or
more years. determines contractions and expansions in the business cycle, but does not declare depressions.

You tell me if these diagrams fit the depiction of the situation described above…

Subscribers, reference the Shadow Inventory Analysis model
for what I consider to be the elephant in the room. Go through the
whole model, of course, but pay attention to the first chart, “Years to
Clear Shadow Inventory Backlog’. That will be the gist of my next post
on this topic. Between that, and the inevitable spike in interest rates,
if we are in a depression now – what will you call it when we lose
another 20% of economic value???

I will be discussing this in depth on CNBC's Fast Money today between 5 pm and 6 pm. Feel free to follow me on Twitter or Subscribe for blog research.

Related:

1. When Will the Mainstream Media Be Ready To Call The NAR The Sham That It Really Is?

2. The
   Inevitable Has Finally Been Admitted In Europe: The Macro Experiment
   Has Ignited Inflation Without Commensurate Growth & Rates Will Spike

3. If Japan Lost Two Decades From Its Bubble Popping, How Many Decades Should The US Expect To Lose?

4. Why Is NYC The Only Major Condo Market Increasing In Price?

5. The Latest Case Shiller Index – Housing Continues Freefall In Aggressive Search For Equilibrium

6. Reggie Middleton On Max Keiser Discussing Tradable Fraud, Goldman’s Facebook Deal & Phantom Bank Earnings

7. I Warned That Banks Will Soon Be Forced To Walk Away From Homes… Guess What!

Comments

[Thisson]

You might have to pay someone to take the property off your hands due to the property tax liabilities...

[Idiot Savant]

+1 - Especially in this envrionment, with revenue down and munis hurting. When people start to lose basic services (fire, police, EMS), they'll accept tax increases out of fear.

If the property isn't capable of generating revenue, I wouldn't take it for free.

[ptoemmes]

My wife and her brother became the legal owners of their mother's condo in Southeast Florida - Western Broward County over 55 community - a few years before her death last November.

Condo purchased new in 1993 for $84K - mortgage paid off in early 2010.  No takers today at $55K.  Don't want to become landlords, but might have to if it even would rent out. "Investors" interested, but deed restrictions require new owners to live in condo for 18 months before they can rent it out.

Pete

[Thisson]

My family has a similar situation in Florida.  We inherited my grandfather's condo in a nice retirement community.  Now it is a liability (because of the property taxes) and nobody wants to buy it at any price.  There are numerous vacant units in the development that are also listed for sale.  

It cannot be rented (rules require that residents have a minimum age of 55 or 65 or something). 

The only solution I see is for some developer to buy the entire development, pave it over, and build something new.

[apberusdisvet]

Obama's new foreclosure fraud forgiveness policy may be done by executive order; a tradeoff of $20 billion for a potential $10+Trillon in liabilities.  The MSM won't report this, so we all have to blog it everywhere.  If this passes it will be the final straw for the American Middle Class.

[flattrader]

Damn Reggie,

I won't be near a TV.  Post to You Tube.  You are too good lookin' for me to miss this.

Anecdotal on my part.

I live on the western edge of a large SMSA.  Very suburban, very white, very "high end" housing.

Numerous condo listing now below 100k...and falling.  These are units that are less than seven years old on average.

This is going to get interesting real fast as the price of gas rises.  Commutes from this area can be long...and getting ever more expensive.  And this is a low gas tax state.

[flattrader]

2009 Median income for my area $121, 470.

Mean prices in 2009:

All housing units: $409,419;

Detached houses: $421,786;

Townhouses or other attached units: $173,882;

In 3-to-4-unit structures: $152,808;

In 5-or-more-unit structures: $115,020;

Mobile homes: $236,489  [I suspect that the few remaining are on large tracts of "developable" land.]

Median gross rent in 2009: $925.

That WAS 2009.  This is now.

Yesterday, while trolling Trulia I saw a 2BR, 2BA Condo for $70,000 (short sale), similar listings at $93,000 and $90,000.

What they CAN'T sell out here for $250,000 is just amazing...3-4 BR, 2 BA on 2-3 ac. sit on the market.

[Hugh G Rection]

When I can trade a 100oz Englehard Ag for a 3 bed 2.5 bath, thats when Im getting back in the market.

Thanks a lot Jekyll Island pontificating swine, hopefully your Red Shield doesn't protect you from the justice you deserve. Cocksuckers.

[duo]

You ain't seen nothing.  When the condo maket in Dallas hit bottom, you could buy $100K  units (1984 price) for under $10K.  My girlfriends landlord offered me her condo for $9K, and would take a credit card.

[flattrader]

What year did it "hit bottom"?

I am expecting sub-$50,000 on many condos within a year if that short sale is any indicator.

Single families will hold their value better...for a while because banks won't capitulate.

In the late fall a handful of "benchmark" bank-owned REOs I was tracking disappeared from the listings.  I could not find any evidence of sale.  These were 3 and 4 BR, 2(+) BA on 2-3 ac.  A few were less than 5 yrs. old and 1 was only 3 yrs. old.  I expect to see them back on the market this spring ratched down to $225,000 or $200,000 by mid-summer and still sitting there.

[duo]

bottom was hit around 1993.  8 years.

I bought when properties were coming out of their SECOND foreclosure, e.g, the first buyer of the foreclosed property got foreclosed on.

[flattrader]

Thanks for info duo.

I could be looking at waiting until 2015 (+) given the amount of shadow inventory.