As Clearly Forecasted On BoomBustBlog, Housing Prices Commence Their Downward Price Movement In Search Of Equilibrium Scraping Depression Levels

Reggie Middleton's picture

Anyone who regularly follows me knows that I have been adamant in
disagreeing with any who actually assert that the US has entered a
housing recovery. The bubble was blown too wide, supply is too rampant,
with demand too soft and credit tighter than frog ass. Today, the Case
Shiller numbers have come out, and after a few months of showing price
increases, have come around full tilt to reveal the truth – Reggie
Middleton style!

From CNBC:

U.S. single-family home prices fell
for a fourth straight month in October pressured by a supply glut, home
foreclosures and high unemployment, data from a closely watched survey
showed Tuesday.  AP  The Standard & Poor’s/Case-Shiller composite
index of 20 metropolitan areas declined 1.0 percent in October from
September on a seasonally adjusted basis, a much steeper drop than the
0.6 percent fall expected by economists.  The decline built on a
revised decrease of 1.0 percent in September and took prices down 0.8
percent from year-ago levels. It was the first year-on-year drop in the
index since January.  The housing market has been struggling since
home buyer tax credits expired earlier this year. To take advantage of
the tax credits, buyers had to sign purchase contracts by April 30.

“The (housing) double dip is almost here [there was no double dip, just a result of .GOV bubble blowing]
, as six cities set new lows for the period since 2006 peaks. There is
no good news in October’s report,” said David Blitzer, chairman of the
index committee at S&P.

Eighteen of the 20 cities showed weaker year-on-year readings in October and all 20 cities showed monthly price declines.

Unadjusted for seasonal impact [in other words, closer to the truth], the 20-city index fell 1.3 percent in October after a 0.8 percent decline in September.

To begin with, the Case Shiller index is highly flawed in tracking
true price movement in a downturn such as this since said downturn is
being led mostly by elements that the CS index purposefully omits. This
means that those price drops that are being shown by the Case Shiller
index are actually highly optimistic and seen through spit shined
rose-colored glasses. The reality is a tad bit uglier. See ??The Truth Goes Viral, Pt 1: Housing Prices, Economic Sales and the State of Depression as well as Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading!

I discussed my thoughts on the Case
Shiller index (a complex statistical construct that excludes many of
the factors currently dragging on the housing market) being quoted in
the mainstream media as if it was the S&P 500, its shortcomings,
the true state of housing sales value in America and what’s in store
for the near future.

Subscribers have access to all of the
data and analysis used to create these charts, in addition to a
more granular application, by state in the SCAP template and by
region in housing price and charge off templates – see

See the following posts for an extensive background on the topics discussed in the video:

Pay Attention to the National Association of Realtors and Their Chief Marketing Agent At Your Own Risk!

Several times last year I stated that most of the big banks were
being much too optimistic in their forecasts and releasing of credit
loss provisions – see As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves.
You see, the mortgages currently on the books are worth even less as
the collateral continues to depreciate, and it is exacerbated by the
robo-signing problems.

…despite a decline in net
revenue and increase in non-interest expenses (both of which appear to
be part of an obvious trend), profit before taxes was up 22% y/y as
provisions for credit losses were slashed by 60%.
decreased its provision for credit losses despite no evidence of a
substantial, sustainable improvement in credit metrics (please
reference As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves). Provisions have lagged charge-offs for two consecutive quarters in a row.

Click to enlarge

As a result, banks allowances for loan
losses have decreased to 4.9% in Q3 from 5.1% in Q2 and 4.7% in
previous year.  Although under provisioning has helped the bank to mask
its dearth in profits it has also materially undermined its ability to
absorb losses if economic conditions worsen. The Eyles test, a measure
of banks ability to absorb losses, has consequently worsened to 1.9%
in Q3 from 3.7% in Q2 and 5.9% in Q3 09.

I used JP Morgan as an example, but they were far from alone. As excerpted from

JP Morgan Foreclosure Pipeline is Not Only Packed Tight, It Is
Progressively Getting Much Worse As The Time To Foreclosure Extends AND
the Delinquency Rate Continues to Climb At The Same Time That Real
Economic Housing Sales Value Is At An All Time Low As Well – and
Getting Worse!!!

Future Losses Are Mounting at an Incredible Pace Yet JPM is reducing provisions due to improving credit metrics. See JP
Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder
of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can
Be When They Say XYZ Bank Can Never Go Out of Business!!!
and JP
Morgan’s Analysts Agree with BoomBustBlog Research on the State of
JPM (a Year Too Late) but Contradict CEO Jamie Dimon’s Conference Call

JP Morgan’s average
delinquency at foreclosure is 448 days (with Florida and New York
having a record 678 days and 792 days of delinquency at foreclosure).
Average delinquency for the industry is about 478 days and is
increasing consistently since the start of the crisis.  During 2009 the
average days from delinquent to foreclosure process was 223 days while
as of August 2010 average days from delinquent to foreclosure process
is 478 days. A very important, yet often under appreciated fact is that
although serious delinquencies are still climbing, the lengthening of
foreclosure process has resulted in these loans still being classified
as delinquent. The difference between delinquency rates and foreclosure
rates has increased to 5.3% (9.8% delinquency rate vs 4.6% foreclosure
rate) in August 2010 from 3.6% in March 2002 (5.1% delinquency rate vs
1.5% foreclosure rate). As the difference between delinquencies and
foreclosure rates normalizes, and shadow inventory overhang moves to
further depress real estate prices, real estate related write-downs
could further balloon. So, you see, the marginal improvements in credit
metrics that JP Morgan’s management has used to justify the releasing
of provisions (which also just so happened to have padded a weak
quarter of accounting earnings) is really kicking the can of reckoning
down the road…

Add to this the
difficulty in getting rid of the properties once they are foreclosed
upon and you will find that the big banks such as JP Morgan (or after
looking at these numbers, particularly JPM (although I suspect BAC and
certain others are worse off) will become the nations largest
distressed residential housing REITs!!!

For those who didn’t catch it, I
espoused my opinions of JP Morgan’s overt optimism on CNBC a couple of
months ago, and things are turning out exactly as  have stated with bank
reserves being shoved into the accounting profit bucket just as the
foreclosure pipeline is being backed up by robo-signing scandals which
exacerbates the largely under appreciated shadow inventory problem (The
3rd Quarter in Review, and More Importantly How the Shadow Inventory
System in the US is Disguising the Equivalent of a Dozen Ambac
), MBS investors are demanding significantly increased put backs (see ) and “Yes, Housing Prices Have Much Farther to Fall. We’re Talking Years…”

For those who haven’t seen it yet, here is my interview on CNBC discussing JP Morgan’s optimistic management and Apple’s margins with Herb Greenberg.

Related links:

  1. Those
    Who Blindly Follow Housing Prices Without Taking Other Metrics Into
    Consideration Are Missing the Housing Depression of the New
  2. Pay Attention to the National Association of Realtors and Their Chief Marketing Agent At Your Own Risk!
  3. Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading!
  4. Yes, Housing Prices Have Much Farther to Fall. We’re Talking Years…
  5. Because 105% LTV On Depreciating Property Wasn’t Good Enough for the US Taxpayer…
  6. I
    Told You Housing Was Going to Take a Downturn for the Worse. I’ll
    Tell You Something Else, We Are in a Housing Depression! It’ll
    Get Worse Until Market Forces Rule Over Government Bubble Blowing!
  7. As I Made Very Clear In March, US Housing Has a Way to Fall
  8. It’s Official: The US Housing Downturn Has Resumed in Earnest
  9. The Great Global Macro Experiment, BoomBust Cycles, and the Refusal to See the Truth: Bubble Economics in the Mainstream Media

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Christobevii3's picture

Reggie you should look into how this will effect the local government revenues soon.  I live in a smaller city in texas.  They are looking at a recovery based on sales tax recipts being up slightly 1-3% from the bottom.  They are considering allowing a small raise to employees after being frozen for 2 years.  


During this time home prices have been relatively stable, maybe a 2-3% move between 2008 through 2010.  The last few months though on zillow prices are coming down on listings.  It is now around a 10% move.  The problem in this is that governments set budgets for 2011 in october.  Tax revenues were projected flat in housing but in reality they will be down.  


Wage raises may be put out though only on sales tax revenues being up.  So a 2% raise across the board with a 5% drop in property values will create a mess.  Texas only allows a city to pay a percentage of revenues out to employees and this would put it beyond the allowed amount.  This will show in the 2012 budget in starting around August when they look at the next budget, until then it is off the books and hidden.

Basia's picture


You are one of the few contributors that I take seriously. 


goodrich4bk's picture

10% of homeowners are not paying their mortgage and the average time they are allowed to remain in their home is now almost 18 months.  I'd love to see somebody quantify the effect of this indirect stimulus on GDP, because at some point these people will need to start paying rent again.

bdrichards's picture

It really might be different this time. The cyclical nature of real estate, as so many of us have observed over the past 30 years, may be changing. Since "Steve of Virginia" hasn't chimed in yet, allow me to assess the probabilities of a real energy crisis in the near future.


I suspect a lot of suburbs will be particularly hard hit, and we all will be doing a bit of downsizing, involuntarily.

John Templeton said, in the 1980's that the next real estate crash will end with a loss of 90% of the value.


Spigot's picture

Reggie, in the interests of effeciency, is foregoing the name taking in favor of ass kicking. IMO entirely the correct choice given so much ass to be kicked in a handy fashion.

gangland's picture

lots of respect for you RM, thanks for being here.

greenewave's picture

We are NOW in a Houseless, Jobless RECOVERY according to the CROOKS on WALL STREET!! It’s such a FRIGGIN TERRIFIC RECOVERY watch the YouTube video “Jobless..Houseless..Recovery. Let’s Celebrate!” at (


This guy? is kinda! like a love child from Peter Schiff & Max Keiser!

Seasmoke's picture


Mr Lennon Hendrix's picture

And the lesson of perfection you're witnessing is the reckoning!  Housing is done, it was so expensive compared to what people can afford on their government salaries and subsidies after American jobs were decimated by NAFTA.

bronzie's picture

and what kind of "housing recovery" is it realistic to expect?

the last up-cycle was driven by NINJA loans - no income, no job, no down-payment, no assets, no problem - anyone who could fog a mirror was able to get a mortgage for half-a-mil at least

for housing prices to recover to their peak prices in the 2005/6/7 timeframe would require fog-a-mirror loans to make a comeback and that doesn't appear to be happening

what is happening in the mortgage arena is that Fannie and Freddie are 95%+ of the market and just fogging a mirror isn't enough to qualify for a mortgage loan

it's amusing here in SoCal to talk to people who are "waiting for the market to come back"

what a joke - the market isn't coming back, folks


bronzie's picture

any number of common sense methodologies tell us that it is too soon for housing to be in recovery - here's one:

look at the historical real estate cycle in your local market - here in SoCal we get 6 to 7 years of up-cycle followed by 6 to 7 years of down-cycle - been that way for several decades

now decide when your market peaked - the peak depends on type of housing here in SoCal - condos and single-family housing peaked at different times

let's say the peak was in 2006 - 6 to 7 years of down-cycle means that we shouldn't expect any kind of bottom until at least 2012 or 2013

so just using common sense we are too early for any kind of a 'housing recovery'

then we can talk about other factors - the main one being that the cycle that peaked in 2006 wasn't a normal cycle - it was the biggest real estate bubble that has ever been seen on planet earth

to think that a financial bubble of that magnitude can pop, deflate and then start re-inflating in 2 or 3 years is just silly - common sense says that since the last upcycle was huge, the following down-cycle should also be larger and longer than the typical down-cycle

but what do I know?  I'm just a common-sense kinda guy ...

Fat Ass's picture

What a great guy. Go Reggie!

rosiescenario's picture

...and CNBC this morning had a report confirming that home prices had indeed hit bottom and were heading back up in Madera, Merced, Salinas, and Riverside, CA.

...I just happen to know those areas...and prices are not going up.

Eternal Student's picture

I took a look at Redfin's stats for some of those areas, and YOY prices are indeed up. Salinas is up 7.2%, and Riverside is up 9.1%. But the prices since October have indeed dropped.

In fact, if you look at some of the supposed best areas according to CS, even though YOY is up, the increase has been getting smaller; and MOM is going down.

You'd have to be completely blind to not think that we're in a double-dip. Or a first-time homebuyer. :)

Boilermaker's picture

It doesn't matter if it's true.  The first rule of propoganda is keep repeating the lie over and over.  If you give me enough time, I can convince someone of weak mind that a square has 3 sides.


dbradsha's picture

Yeah - so explain DRV/IYR lately ???

Boilermaker's picture

EXACTLY!  You beat me to it.

This is all great stuff with the exception that the 'forces that be' are going to rip your face off if you even dare to short it.

As long as laws are optional and there's no sherriff to stop the non-stop ramp jobs, what difference does it make?  None.

Look at IYR 5 day chart.  F'ing please.

spartan117's picture

How does IYR keep my house from losing value?  Down another 10% for the year, btw.

Boilermaker's picture

What?  That wasn't really the point.  The point was that 'forces' are pushing up the IYR & components even though it should plunge (along with your home value).

Reggie Middleton's picture

IYR is not real estate, it's a manipulated derivative. If you disregarded my research during the so called "recovery" and bought into the bubble via REAL residential real estate at retail prices you would already be down a material amount today, and it still has a ways to go. You know the saying, "Who are you gonna believe, ETFs or your lying eyes?"

Boilermaker's picture

C'mon Reggie, I know you're right (and my lying eyes) and the REIT's are being put into astronomical valuations, but IYR is the dominant ETF for CRE.  Granted, it's not residential real estate but, actually, CRE is in WORSE shape.

My point was / is that it doesn't matter what the actual situation is.  The boys in DC have unlimited means to jack up anything they want to.  I don't know if they can do it 'forever' or not.  But, they certainly have lost all sense of shame in burning all shorts in the segment.

BTW, I live in Metro Detroit...let me introduce you to Pontiac, Michigan if you want to see devastated residential real estate.  By that, I mean homes literally not selling for $1.00 even.

LiquidBrick's picture

and credit tighter than frog ass

too funny for words.  + 1 Reggie. Thanks.


hardcleareye's picture

So just how tight is a frog's ass?

robobbob's picture


though this time around it will be chinese engineers

TruthInSunshine's picture

They quit making real estate, bitches!

Err...or so I was told back during the bubbly, frothy times.


(And I've also heard real estate and stocks are where "it's" at, too, at cocktail parties in the past.)

MarketTruth's picture

Ask yourself this, does your RE contract say you OWN the land or are you simply a "tenant"? And why does it say that?

Boilermaker's picture

You never own the dirt, you only own the structure on the dirt.  Imminent domain, property taxes, etc, will calibrate your thoughts on that quickly.

MachoMan's picture

Definitely.  The doctrine of eminent domain has expanded far beyond necessary governmental expenditures/improvements...  The worst part about it is you have to hire people like me to defend the value of the taken property (virtually impossible to defend against the taking itself)...  as the government's appraisers have a bit of a bias towards the low side. 

But, viewing some of the big highway takings around here in a multicounty area, 8/10+ of the people simply accept the governmental valuation and go on...  the largest reason for this is that they are not sophisticated enough to fight it (elderly/dead/paid a pittance for the property 100 years ago/need any cash they can get quickly and don't want a lengthy court battle/etc.).  Pretty sick really.  I'm talking acceptance of 20% of real value here...  really crazy.  Why would people stand for that?  Why would fellow citizens fuck others that badly when they don't get any extra from it?  (i.e. the governmental workers literally don't get paid any more regardless...). 

robobbob's picture

interesting you say fight it.

I knew of a company that owned a large tract of land that was in the government's sights. they were offered a insultingly low number and an exchange for some contaminated old industrial site.

Off they record, they were given the name of a "consultant", who had previously worked for the commission. a year and $tens of K later, the offer was raised to only annoyingly low. They decided against taking the toxic waste dump. (later, a nearby site was cited for arsenic and required a big $ cleanup.)

MachoMan's picture

In all of our cases (~dozen in the last 3-4 years) the jury has returned a substantial % larger than the state's offer.  It's generally really easy to find the holes in the state's appraisal and they do not make good witnesses...

TruthInSunshine's picture

Brother, in modern day Amerika, we are ALL renters.

The property tax scam has never been more alive or well, thanks to the rot and corruption of the system.

I am fairly high net worth, but I have thought deeply about opting out of the charade that is 'freedom' in Amerika.

I just witnessed an uncle and aunt of mine be compelled to 'hook up' to a municipal sewer and water line on a large tract of land they've owned in horse country (they have many horses), at a cost of over $16,000, and after which the county assessor raised their appraised value by 45%.

They can afford it, but what if they could not, as so many can't?

This...whatever it very, very far from freedom and liberty as I could ever possibly imagine.

MachoMan's picture

What was their appraised value before hand and what is the real value of the land?

TruthInSunshine's picture

I'm not sure what the appraised value is, but I think the fact that they local unit of government forced sewer and water upon them, at their expense (there were zero health issues with their water or their septic field - my uncle is very sharp and a retired mechanical engineer who knows his shinola and his shit), and then are forced to receive a drastically higher appraisal for the cost of doing business with the government (involuntarily), is pretty incredible.

MachoMan's picture

So the boundary of the city limits expanded to include their property?  If they were not legally required to do so, why did you not hire an attorney to contest the issue?  Generally attorneys fees are going to be available when battling a governmental action like this...

robobbob's picture

the same happened to a friend. The gov was running the lines down his street. by law, if its available, you must accept. no hearing, no appeals. automatically added to the prop tax bill. they charged him based on the amount of frontage the road passed by $/ft X road footage (+/- $19K?).   oh, he did have the option of paying the bill in its entirety, which he couldn't, so the gov was happy to extend a low interest loan, conveniently tacked on to his yearly prop tax bill.

pay it and move on, or refuse, and see your house put up at the tax auction.

MachoMan's picture

We routinely sue our city and to my knowledge have never lost...  One of the things cities love to do is enact laws in which they have no authority granted from the state/U.S. constitution to enact...  I have some serious reservations about this practice and its application.  Even if it is possible for cities to do this, they've likely fucked up procedurally...

Also, you can usually opt out of these sorts of things...  meaning, if you've got a functioning septic tank, etc., then you can keep rocking and rolling with it until it fails or you sell the property, then you won't get a permit from the city and you'll have to pay the assessment...  Further, if you choose to go this route, you'll likely not have the 30 year financing available either...  (not sure why you would want to finance with the government anyway given the availability of default or lack thereof).

Generally, laws like this persist until someone has the gumption to file suit with the city....  further, you should hope for retributive action by the city towards you post lawsuit because it will likely mean a nice payday...  much in the same sense you should hope to be fraudulently foreclosed upon.

Of course, the problem is that you're going to spend $10k at least on an attorney fighting the issue...  most likely, they would tell you to pay the city and go on...

Not a perfect situation...  but I would have to strongly question the need to lay lines in the boonies...  as always, there are more facts to the story than have been presented...

Jim Billy Bob James IV's picture

Reggie Middleton is the man.  He calls it like he sees so don't expect to see him on CNBC.

Yits and the Yimrum's picture

Reggie, nice interview on BB; at least they let you speak without a bunch of snide remarks, issue clouding as they would on CNBC.

These bubbles take a long time to deflate; many working people are going to pay with their last cent to hang on to these bubble McMansions

Not a wise decision in my estimate!

small plots for gardening and small animals are what is needed, away from the golden hoard.


keep up the great work Reggie.

Boilermaker's picture

Following his advice, even if he's technically correct, will leave you wearing a eat-at-joe's sandwich board.

The Fed is hardly going to let IYR or it's components go down AT ALL.  Aside from that, yea, the REITs suck.

hardcleareye's picture

What effective tools do they (the Fed) have left to keep the IYR and REIT's inflated and "isolated" from the market and reality (two very different points)?

Boilermaker's picture

Well, they seem to have not exhausted the 'effective tools' that they've been using, repeatedly, for about 2 years now.

I hope the DO run out of ammo.  I just don't think they will nor care how absurd it gets.

svendthrift's picture

You are right, no doubt.

bigelkhorn's picture

This is a sign of what is coming for the economy. WTF? Shitty Economy - Shops selling human excrement In North Korea =>

Sudden Debt's picture

NO! It can't be!

Because if it where true, the dropping housing market and lowering income would mean there is still deflation.

And Benny B. said that... you know, all is well!

eatthebanksters's picture

The Bernank nows all...just ask the bears!