The Frighteningly Obvious Truth That Most Deny – US Housing Continues Freefall & Is Nowhere Near The Bottom

Reggie Middleton's picture

The residential real estate situation is still looking quite bleak.
The downturn (actually, the continuation of the earlier downturn – they
were not two separate events) that I forecast last year has come, and
come with a vengeance. If we may reminisce, the mainstream media was
overrun with optimistic housing forecasts, primarily as a result of some
minor metric upticks born from incessant .gov bubble blowing. From my
post of June 22nd last year - As I Made Very Clear In March, US Housing Has a Way to Fall

From Bloomberg, early in the morning you get the usual, inaccurate analyst chatter: Sales of Existing Homes in U.S. Probably Climbed on Tax Credit

Sales of U.S. previously owned homes
rose in May to the highest level in six months as buyers rushed to beat a
June tax-credit deadline, economists said before a report today.

of existing houses, which are tabulated when a contract closes,
increased 6 percent to a 6.12 million annual rate, according to the
median of 73 forecasts in a Bloomberg News survey. To receive a
government incentive worth as much as $8,000, buyers must have signed
contracts by the end of April and need to complete deals by the end of
this month.

Credit-induced gyrations will make
the underlying health of the market difficult to determine over the next
couple of months. A slump in builder shares since early May signals
investors are concerned the damage caused by the end of government
stimulus, mounting foreclosures and unemployment will exceed the benefits of lower mortgage rates.

Then the actual report comes out: Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May

June 22 (Bloomberg) — Sales of U.S.
previously owned homes unexpectedly fell in May, a sign demand was
probably pulled into prior months before a June tax-credit deadline.

of existing houses, which are tabulated when a contract closes,
decreased 2.2 percent to a 5.66 million annual rate, figures from the
National Association of Realtors showed today in Washington. To receive a
government incentive worth as much as $8,000, buyers must have signed
contracts by the end of April and need to complete deals by the end of
this month.

The decline raises the risk the
retrenchment following the expiration of the tax credit will be deeper
than anticipated. A slump in builder shares since late April has
exceeded the retreat in the broader market on concern the damage from
the end of government stimulus, mounting foreclosures and unemployment may cause renewed weakness.

Now, this is the BoomBustBlog version
from March of this year where I made it crystal clear that housing will
fall further and significantly. The government incentives are just
market interference and pricing distortions, prolonging the pain: It’s Official: The US Housing Downturn Has Resumed in Earnest

Let’s take a look at some charts sourced from the upcoming BoomBustBlog subscriber “A Fundamental Investor’s Peek into the Alt-A and Subprime Market”

Click to enlarge - NOTE: videos and interactive graphics are available in the original version of this article at


Come 2011, the effects of the government’s attempt to usurp market
forces have nearly completely worn off and housing stock is in free fall
– exactly as I proclaimed in 2009 and 2010 – free fall in an incessant
search for equilibrium. Said equilibrium is nowhere near where we are

My very first post, the one that
created BoomBustBlog, back in 2007 warned that the residential and
commercial real estate bust was not only just getting started, but would
continue for quite some time. I was dramatically more bearish than the
Street and the mainstream in general. Reference The Real Trend in US Housing Prices… Sunday,
September 2nd, 2007. In that post I made clear that although the Case
Shiller index looked bearish, it failed to capture the worst parts of
the residential bust. Well, fast forward 3.5 years later and the story
still stands, even more exaggerated.

Looking at the basic precepts of residential real estate
valuation, there is no real reason why prices should not continue
falling. As indicated in the Bloomberg video below, nearly every factor
that you can plug into the valuation equation is negative. In addition,
the recent fraudclosure issues significantly exacerbate the problem.
Here, you have the most recent snapshot of the Case Shiller index. As
you can see, it is the quintessential picture of a bubble gone bust.
Notice the upticks throughout 2009 and 2010, the results of incessant
.gov bubble blowing. Many truly believed that was the marked turnaround
in the real estate market. Those who believed so did not study their
history nor their spreadsheets. Plug in the numbers, and you will see
that there is no empirical reason for housing prices to go up when they
are still too richly priced to begin with.

Please take into consideration that I believe things are actually
going to get worse, for the shadow inventory buildup has been
exacerbated by the foreclosure issues. All paying subscribers should
review Foreclosures & Shadow Inventory.
Shadow inventory not only hides the true condition of the housing
market, it allows banks to hide the true nature of profits from said
housing stock. More on that in our next post which will contain a
current update of the shadow inventory and foreclosure backlog numbers.

Teaser to our upcoming foreclosure research

Related links:

Interested readers can follow me on twitter, peruse my Residential Real Estate postings and/or my Commercial Real Estate opinion and research. I
will be lecturing on this “realistic” viewpoint of real asset valuation
and the outlook for 2011 as the keynote speaker in both New Amsterdam
(Harlem, NY) and Amsterdam (the Netherlands).


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cranky-old-geezer's picture


a) 22% unemployment (23% now?), and

b) 40% under-employment (50%? 60%?), and

c) massive MERS chain-of-title destruction where prospective home buyers stay away cause they can't get clear title, and

d) higher portion of incomes going to food and fuel (thanks to Bernokio holding the print button down, then taping it down when his hand gets tired) meaning lower portion of incomes available for mortgage payments, and

e) local bankrupt govt kicking property taxes up hoping to forestall bankruptcy (empty hope),

yes, it's gonna get much worse.

It's "the perfect (shit)storm" in residential real estate, and it's gonna get worse.

Only way I'd buy a home now is...... forget it, no way.

sensei's picture

I'm 33.  Sold my first house in 2007.  My wife and I aren't even thinking about buying again in this market.  We are renting a house that has been on the market for 3 years and shown exactly 3 times.   The asking price hasn't gone down because the RE agents keep insisting that the market comeback is just around the corner.  We pay $1000/month in rent.  Mortgage would be $2800.  Pretty obvious choice there.

Add to that the fact that as renters we are not hostages to property tax increases.  And we are free to move to where the work is.  For a younger person that is ESSENTIAL today.  Cities, counties, and states are going to be tanking in the next few years.  You need the ability to up and move to where you can make a living. 

Real estate is no longer an asset in America, it is almost strictly a liability. 

blunderdog's picture

As someone who never bought, I've been a bit more mobile because of never being faced with a choice between a short-sale and becoming a remote landlord.  In a labor-market where decades-long employment is virtually non-existent, real-estate seems to lose much of its appeal.

I like the idea of a country where you can get a straight job that pays a decent wage and work there for 20-40 years and eventually retire.  You get to put down roots, know and love your neighbors and their kids, maybe even contribute to the local community during your spare-time.

Any countries like that around?  My experience has generally been an atomized society of wild-eyed job-hopping nomads and dead-eyed prisoners of their debt.


virgilcaine's picture

Just double or triple up the no of families per house!  affordability problem solved.  The single family per mcmansion is highly inefficient and outdated.

stev3e's picture

This will be a big part of the new real estate/economic model in the US - children living with parents and grandparents, extended families living together like Italy, with many young people never marrying.

AN0NYM0US's picture


"My very first post, the one that created BoomBustBlog, back in 2007 warned that the residential and commercial real estate bust was not only just getting started, but would continue for quite some time. I was dramatically more bearish than the Street and the mainstream in general."

with respect, so was Rosenberg but since 666 he has all but lost his credibility, not that Rosie is incorrect about macro issues but he has been and continues to be blind to the short and mid term irrelevance of the metrics he uses as we all continue to wander in the economic wilderness. (there won't, however be a promised land; so in the long term Rosie (and you) will be correct)

Anecdotally in the high end in SWFL, the market is robust with some prime properties exceeding 2005 levels. Contracters are fully engaged as hedgies and banksters stake their claims, whilst the graying fixed incomers continue to subsidize those lavish lifestyles.

Additional anecdotes - on weekends in some SWFL communities, it is not uncommon to see motivated sellers with sandwich boards standing on busy street corners, offering their million dollar dumps at half off.


alagon's picture

The only thing that matters is the price of crude oil. If you're living out in the Midwest, then I'd recommend you move.

alagon's picture

The only thing that matters is the price of crude oil. If you're living out in the Midwest, then I'd recommend you move.

minus dog's picture

The amount of empty space we have in this country, the still ridiculous price of real estate and new and existing homes, and the number of empty homes sitting around are all a disgrace.

At this point, fuck, I'd settle for being able to get my hands on some land.  I don't need a house on it - I can build my own house.  But even if I could afford some land, I cannot afford to pay the government for the priviledge of "owning" it year after year.

There really isn't anything more basic than finding some place to live and putting a roof over your head.  This is all going to end in some sort of massive clusterfuck, I guarantee it.

wisefool's picture

yes, yes it is. property taxes are going to get re-aligned in someway to balance the state budgets. straight Ag land tax went up 10% in my county this year, and that was before the inflation got firmly in the publics' mind. I have a feeling Ben Franklins' warning about the people voting for free money is comming true in everyway possible. Let people avoid property taxes on McMansions, but tax the hell out of agrigultural land cause those dirt farmers must be getting rich from those $15 boxes of twinkies and dollar menu 2oz sandwiches.

twotraps's picture

it is sick.  we all pay attention to the same kind of normal math, math that matters on a day to day basis and that makes sense for our individual long term economic benefit.

Taxes come from La La Land, people out of touch, not understanding the economic gravity of persistent self-inflicted state wide problems, yet raise taxes as though cash flow can never run out.  My eight month old is just coming to terms with the concept of 'No'.  Politicians have never, ever known any consequences for anything.................thats all you ever need to know about why your taxes go up.

Buck Johnson's picture

This is just going to get worse and they have to know it.

cranky-old-geezer's picture

With 22% unemployment and 40% under-employment and massive MERS chain-of-title destruction where prospective home buyers can't get clear title, yes, it's gonna get much worse.

Cistercian's picture

 Great job Reggie.You must really piss off the koolaid dispensing purveyors of fiscal fantasy.

  Kind of like "look! A unicorn!we are saved!" and Reggie says "nope...that's an asteroid 8 miles in outlook on this event is negative, unfortunately".

boeing747's picture

Entire City of 'Mountain House' near Tracy, CA built at the peak of Alan's bubble is REO. Developer is Trimark but the big bank funded this project must lost big time. Check

girl money's picture

Electricity bills, water bills, grocery bills, gas prices are all taking much bigger bite of post-tax income that would otherwise be available for housing. 

We (in our 40s) scraped and saved for a house because it was a "good investment."  Our parents (in their 70s) encouraged us to do this because they had also seen their wealth increase and options expand through home ownership. 

The party is over, the bubble has popped.  I've been mentoring college students, newlyweds, and especially retirees to rethink housing as a long-term liability.  I tell them to step back and make the rent/buy decision as if real estate may not ever be a dependable investment again.  It's wonderful to sense a burden fall from their shoulders as we pick apart the numbers.  It's even better to see eyes opened as I explain that the banks and the government need them to buy, so that they can make money off of them for the next 30-50 years through interest and property taxes.  The price of a mortgage payment should be significantly less than rent for a similar property because of the LONGTERM COMMITMENT TO DEBT, FLUCTUATING INTEREST RATES AND TAXES.

If our country is to survive, this is just one thing from a long list that needs rethinking.  

mynhair's picture

Simple, if you can't afford it over the life of the loan, don't buy.  Rent til you're dead.

Not dead-beat.  Only buy when you are able to pay cash, and take the mortgage instead.

Property taxes are the scum of the Earth, though.  Geez, paying for schools that don't edicate....

kelvin's picture

I live in Lakeland, FL in a historic district.  In 2006 to 2007 houses around here are around 300K to 450K.  Now it can be had at about 40% lower.

I believe we still see about 10 to 15% more downward in neighborhood nearby but not this neighborhood. 

mynhair's picture

Inland.  In PGI, meeself.  Ocean capable in the backyard.  Just have to wean meeself off this fooking market, and teach the cat how to swim.  Prices up 5% from the, so far, lows.

Closing on my insta-JPM refi on 2/15 for 2 % less than current.  I luv the smell of desperation for wet signatures.  It smells like savings!

Mark Beck's picture

Imagine you are about to retire and it is now time to pull out all of that equity would put into your home over a life time of work. and..... you cannot find a buyer. Perhaps you would like to keep working, but..... you are too old to hire.

Yes, the game has changed.

But more importantly price has changed. Price, upon close examination we ask ourselves, essentially, what is price? In everything financial, not just real estate, we ask ourselves how do we price? How do we value? What is a fair and resonable price?


We trend this and we 100 year straightline that, and long for the secure feeling that something may return to a trend that I can embrace and hold with a warm glow, knowing I have achieved a small morsel of normalcy. What sustains a fair market, and when does it become corrupt?

Most watching real estate know that the FED MBS buy was just a way to shift bad debt from the banks, and yes government backing of loans old and new created some activity. But is real estate a high priority beyond the influence on deflation?

Perhaps it is close to last on the pripority list just ahead of employment.

The game has changed, real estate is just the latest target of bank fraud, shifting risk and loss to the taxpayer.

How do we set price for a market (real estate), when that market is price corrupt. Do we really even have a market?


So what is price?

It is what a buyer is willing to pay, with normal mitigation of risk that what is being purchased will sustain value. Without government backing real estate who will buy? Who will risk?


Yes the economic engine of the US is broken. Real estate is just one piece of the ruin which is our economy.

The realization is that without Gov/FED market support, there will be very few buyers. Gov/FED support is being funded through debt, of magnitudes which will also force the exit (destruction) of buyers (investors).

We are in an era of reValuation. A fight over limited real worth, and first access to tax.

Mark Beck

mynhair's picture

Retiring?  Reverse mortgage!

Fred Thompson pimps for them, so it must be ok.

Pee Wee's picture

It seems everyone else is pitching shit-filled twinkee's with respect to real estate.

Thanks for being a focal point of clarity, Mr. Middleton! 


Obaminator's picture

I dont deny that the Housing market is tanking. Im mean, I listed my rental home for sale last June for $10K under "market value" (based on actual Comps at the time)...It came up from $200K in Dec 2009 to $230K in June 2010 (the second "peak"), and made a bee-line dive down to an approximate market value of $168K in Jan 2011.

But even thats a farse...recent comps of banks dumping vacant foreclosures in my area have houses that are 1000sqft larger than my 2850sqft house sold for $145, $150 & $155K in the past 2 months.

That means my house is really worth like $135-$145...its "nicer" but in this market $/sqft rules.


ANYONE claiming R.E. is not bottomed is dillusional or just plain High at best.

topcallingtroll's picture

Why is china building erie ghost cities? These can be seen from google earth, and an excerpt from corsi's newsletter is on yeah i am a little embarrased i.scan their headlines, but if you see the mother of all real estate bubbles check it out.

PY-129-20's picture

This time it is different, topcallingtroll. And Stephen Roach said: "China gets it." That was his whole explanation. But yes,  it is the mother of all real estate bubbles. I am not optimistic about the aftermath. Things will end ugly there. I warned people here (Germany), but they do not listen. They are all like Roach - "China gets it. China is different. China will always be a success story", yada, yada, yada.

I am much more optimistic about the USA (in the long run) than about China.

Yes We Can. But Lets Not.'s picture

and rising interest rates and talk of elimination of mortgage interest tax deductibility will help support housing prices - not...

cranky-old-geezer's picture

Trying to support housing prices, trying to keep home prices inflated, is THE problem.

Ned Zeppelin's picture

Don't forget real estate is local, and using averages to describe what is really a mosaic of different neighborhoods, prices, sales pace etc. may be useful in looking for trends but does not mean alot as pertains to a specific house in a specific market. CA, FL, AZ, NV, MI were and are the poster child for the housing catastrophe, but there are places the housing crunch barely touched, like D.C. But on the whole, the trend on pricing is not up, that is for sure.

cranky-old-geezer's picture

Yes, DC benefits much from federal govt spending tax money collected all over America.

mynhair's picture

Never buy inland.  It is, and always will be:  location, location, location.

If you don't grasp that principle, you shall always remain poor.

On a sailboat canal in FL, with the whole world accessible from my back yard.

Prices are going up again, but never fell back to 2002 levels here, anyway.

dick cheneys ghost's picture

crime/housing in detroit is so bad, even the cops dont live there. the mayor is now offering $1,000 homes and access to fix up money to cops if they move back to the city.

10kby2k's picture


Here in Reno our January median was so bad we touched 2001 levels. In fact the next obvious leg down is well underway. 

aerial view's picture

nice Reggie! The southern CA crowd seems oblivious to reality: the higher gases prices go, the faster they drive in their SUVs and the worse the outlook for housing, the more desperately they want to buy a house-go figure! 

newworldorder's picture

Great analysis as usuall Reggie.

I dont know when or where this ends. I can only add my own little sliver of evidence to the equation.

I live in a wealthy area of a Chicago suburb. Pre 2008 average housing unit was probably $700,000. Close to my location there is a bank owned forclosed home. Carried on the books of a major bank and registered with the county recorder for $500,000. Not listed with any realtor. You can only find it by doing a address search with the county recorder or checking the subscription service of Realty Trac.

This house is invisible to anyone looking for a home other than the bank or their realestate favorate reps. These non listing practices will continue so that the banks can cary assets at inflated prices on the balance sheets. There really is no forcing function for then to do otherwise. The Obama administration and the FED will do everything in their power to continually kick the can to tomorrow.

cranky-old-geezer's picture

"This [vacant] house [carried on bank's books at 500k] is invisible to anyone looking for a home other than the bank or their realestate favorate reps. These non listing practices will continue so that the banks can cary assets at inflated prices on the balance sheets."

Ah yes, another home in the growing shadow inventory, kept off the market to (a) prevent a 300k true-street-value sale resulting in 200k writedown of bank's mark-to-myth book value (200k loss against bank earnings), and (b) keep street values of surrounding homes artificially inflated (which homeowners, county tax assessors, MBS trusts, MBS investors, and real estate agents love).

The bank can afford to keep this home off the market a while, paying for upkeep, lawncare, property taxes, etc, as these expenses accumulate against bank's mark-to-myth 200k overhang, eventually meeting and exceeding that overhang, prompting the bank to dump the home on the market and get rid of it, but then selling for 250k in a further depressed market, resulting in a 450k loss to the bank (250k writedown + 200k upkeep & property taxes).

These banks keep kicking the can down the road, perhaps hoping housing maket will recover (it won't), perhaps hoping government will come along and buy the paper for 700k (book value plus accumulated taxes & upkeep) with taxpayer dollars (very possible), whereupon government will sell home for 250k resulting in 450k loss to taxpayers (instead of 450k loss to bank).

Arthur's picture

The problem with real estate is that for individual buyers one is still faced with local conditions.  On a macro scale, it is easy to wait fo rthe market to shake out some more

The challenge is when you actually need to find a place to live, do you rent a home (there is a scarcity of nice homes for rent in some markets) and wait for the market to drop further or buy a property for somewhat less than it would cost you to build today?  

It is one thing to calculate for investment and another when your family needs a place to live.  


dark pools of soros's picture

huh??  the market is all about degenerates living in their mom's basement using their neighbor's wifi - you think any of them are providers?? have a family??  poker players are more productive in society...





Seasmoke's picture

must go all the way back to 1997 (and probably now that they didnt help homeowners, much earlier than that)

butchee's picture


Remember when the advice was to bake a loaf of bread when showing your house to sell?   And now it's more like, "spray some febreze to drown out the mold and hobo smell, and try to disguise that all your copper pipes have been ripped out and sold for $4.60/lb by those very same hobos who stunk up the vacant property"  So butchee's real question is this:  When does this info start to weigh on the banks and the S&P....or are POMOs and the 200BB SFP unwind still the trump cards in this rigged game?

Thanks for your amazing work and integrity

Ned Zeppelin's picture

Not to mention the metastizing cancer sperading through all those private label MBSs that were the source of the mortgage money in the boom. There are big problems there.

butchee's picture


Please cease and desist with all these initals like MBS, CDOs and CDOs squared, and for god's sake man, don't talk about them when refering to FNM or FRE, or for that matter, the Fed's balance sheet.  And just forget even thinking of mentioning the various and sundry swaps, especially credit default swaps or interest rate swaps, or their fucking initials!  Got it?  You might scare someone.

ptoemmes's picture

This ought to require an extra large box of popcorn - or sharper than usual pitchforks.

Reggie - sorry if too much off topic but seemed related enough to me.



cranky-old-geezer's picture

Pitchforks are a pipe-dream, never will happen, popcorn is the better play, sit back and watch the ponzi go on, sorta boring actually. 

Nor will there be any cataclysmic nuclear destruction of the housing sector to look forward to as a hopeful climactic end to said boring movie.

It's going to be one long boring movie right to the end as the financial end of the housing sector maintains their inflated paper values via fraud after fraud, funded by a steadily inflating money supply of steadily shrinking dollars, while the physical end of the sector continues collapsing, until the financial paper on a home says it's worth a million while the physical home sits vacant, vandalized, and ready for buldozing.

Huck T's picture

Vegas was stupidity on 'roids.  And Florida, for all practical purposes, might just prove bottomless.  I cannot see a way out for California, either.  Given the scale and nature of the population/capital flight from both of FLA and CA in the 00's (fuelled by the bubble itself), it sure looks like a death spiral.

Some in the OC say Just get it over with: Bulldoze the Overhang, and call an end to the notion of widespread prole homeownership.       

Zero Govt's picture

expect US property to drop to 10 Cents on the Dollar from the 2006 peak... anticipate the property market never to be the same again, probably a shift completely to rental hereafter. And it's about time in truth, who wants to spend a big chunk of their future earnings, 15-30 years, just for a house or apartment? When computers, DVD players and washing machines halve in price every couple of years and get ever better why do we accept paying ever increasing prices for the same pile of bricks? Bring on the change i say, what we had was quite literally madness (you'll feel exactly the same in 5 years trust me)

Jasper M's picture

Seconded, on all counts. 

topcallingtroll's picture

Real estate deflation meet food inflation. The fight of the century is upon us. Cant they just both meet in the middle and shake hands? I sure hope so.

57-71's picture

At some point the inflation that is now underway in most commodities, will also hit fixed assets like housing. The question is when will the money chasing start?

Housing will likely have a spectacular and fast run up once it gets going. Who can call the bottom? And how much will you buy at the "bottom"?  

QQQBall's picture



Perhaps you could quote history and detail any manic bubble that reflated?