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Housing Armageddon: 12 Facts Which Show That We Are In The Midst Of The Worst Housing Collapse In U.S. History
Michael argues that housing prices are not done going down, and neither is the value of the dollar. - Ilene
Housing Armageddon: 12 Facts Which Show That We Are In The Midst Of The Worst Housing Collapse In U.S. History
Courtesy of Michael Snyder of Economic Collapse
We are officially in the middle of the worst housing collapse in U.S. history - and unfortunately it is going to get even worse. Already, U.S. housing prices have fallen further during this economic downturn (26 percent), than they did during the Great Depression (25.9 percent). Approximately 11 percent of all homes in the United States are currently standing empty. In fact, there are many new housing developments across the U.S. that resemble little more than ghost towns because foreclosures have wiped them out. Mortgage delinquencies and foreclosures reached new highs in 2010, and it is being projected that banks and financial institutions will repossess at least a million more U.S. homes during 2011.
Meanwhile, unemployment is absolutely rampant and wage levels are going down at a time when mortgage lending standards have been significantly tightened. That means that there are very few qualified buyers running around out there and that is going to continue to be the case for quite some time to come. When you add all of those factors up, it leads to one inescapable conclusion. The "housing Armageddon" that we have been experiencing since 2007 is going to get even worse in 2011.
Right now there is a gigantic mountain of unsold homes in the United States. It is estimated that banks and financial institutions will repossess at least a million more homes this year and this will make the supply of unsold properties even worse. At the same time, millions of American families have been scared out of the market by this recent crisis and millions of others cannot qualify for a home loan any longer. That means that the demand for unsold homes is at extremely low levels.
So what happens when supply is really high and demand is really low?
That's right - prices go down.
Hopefully housing prices don't have too much farther to go down. Ben Bernanke and the boys over at the Federal Reserve are doing their best to flood the system with new dollars in order to prop up asset values, but you just can't create qualified home buyers out of thin air.
Many analysts are projecting that U.S. housing prices will decline another ten or twenty percent before they hit bottom. In fact, quite a few economists believe that the total price decline from the peak of the market in 2006 will end up being somewhere in the neighborhood of 40 percent.
But whether prices go down any further or not, the truth is that the housing crash that we have already witnessed is absolutely unprecedented.
The following are 12 facts which show that we are in the midst of the worst housing collapse in U.S. history....
#1 Approximately 11 percent of all homes in the United States are currently standing empty.
#2 The rate of home ownership in the United States has dropped like a rock. At this point it has fallen all the way back to 1998 levels.
#3 According to the S&P/Case-Shiller index, U.S. home prices fell 1.3 percent in October and another 1 percent in November. In fact, November represented the fourth monthly decline in a row for U.S. housing prices. Many economists are now openly using the term "double-dip" to describe what is happening to the housing market.
#4 The number of homes that were actually repossessed reached the 1 million mark for the first time ever during 2010.
#5 According to RealtyTrac, a total of 3 million homes were repossessed by mortgage lenders between January 2007 and August 2010. This represents a huge amount of additional inventory that somehow must be sold.
#6 72 percent of the major metropolitan areas in the United States had more foreclosures in 2010 than they did in 2009.
#7 According to the Mortgage Bankers Association, at least 8 million Americans are at least one month behind on their mortgage payments.
#8 It is estimated that there are about 5 million homeowners in the United States that are at least two months behind on their mortgages, and it is being projected that over a million American families will be booted out of their homes this year alone.
#9 Deutsche Bank is projecting that 48 percent of all U.S. mortgages could have negative equity by the end of 2011.
#10 Some formerly great industrial cities are rapidly turning into ghost towns. For example, in Dayton, Ohio today 18.9 percent of all houses are now standing empty. 21.5 percent of all houses in New Orleans, Louisiana are standing vacant.
#11 According to Zillow, U.S. home prices have already fallen furtherduring this economic downturn (26 percent) than they did during the Great Depression (25.9 percent).
#12 There are very few signs that the employment situation in the United States is going to improve any time soon. 4.2 million Americans have been unemployed for one year or longer at this point. While there has been some nominal improvement in the government unemployment numbers recently, other organizations are reporting that things are getting even worse. According to Gallup, the unemployment rate actually rose to 9.6% at the end of December. This was a significant increase from 9.3% in mid-December and 8.8% at the end of November.
But even many Americans that do have jobs are finding out that it has become very, very hard to qualify for a home loan.
In an attempt to avoid the mistakes of the past, banks and financial institutions have become very stingy with home loans. While it was certainly wise for them to make some changes, the truth is that perhaps the pendulum has swung too far at this point. The U.S. housing industry will never fully recover if they can't get their customers approved for mortgages.
Congress is talking about passing even more laws that will make it even more difficult to get home loans. Even though they give speeches about how they want to help the U.S. housing industry, the truth is that Republicans and Democrats are both backing proposals that would make home mortgages much more expensive and much more difficult to obtain as a Bloomberg article recently explained....
Government officials and lawmakers want to make the market less vulnerable to another credit crisis, and all the options lead the same general direction: Borrowers will need larger down payments than in the bubble years, have higher credit scores, and pay extra fees to cover risks and premiums for federal guarantees on government-backed mortgage bonds.
While all that may sound reasonable, the truth is that the U.S. middle class has become so cash poor that the vast majority of them cannot afford homes without the kind of mortgages that were available in the past.
Not that we should go back and repeat the mistakes of the past 20 years. It is just that nobody should expect the U.S. housing market to "bounce back" in an environment that has fundamentally changed.
The housing market is not like other financial markets. It is difficult to artificially pump it up with funny money. If the U.S. housing market is going to rebound, it is going to take lots of average American families getting qualified for loans and going out and buying houses. But they can't do this if they do not have good jobs. Today, only 47 percent of working-age Americans have a full-time job at this point. Without a jobs recovery there never will be a housing recovery.
In fact, there are all kinds of warning signs that seem to indicate that the U.S. economy could get even worse in 2011. Many economists are now openly using the word "stagflation" for the first time since the 1970s. Back in the 70s we had both high unemployment and high inflation at the same time.
Well, we have already had very high unemployment, and thanks to the relentless money printing of the Federal Reserve, it looks like we are going to have high inflation as well.
Middle class American families are going to be spending even more of their resources just trying to survive, and this is going to make it more difficult for them to purchase homes.
In fact, in recent years average Americans have been getting significantly poorer. Over the past two years, U.S. consumers have withdrawn $311 billion more from savings and investment accounts than they have put into them. That is very troubling news.
Now the price of food is soaring and the price of oil is about to cross $100 a barrel again. So what is going to happen if we have another major financial crisis and we witness another huge spike in the unemployment rate?
The Federal Reserve is trying to smooth all of our problems over with a flood of paper money, but it isn't going to work. Yes, increasing the money supply will produce some false highs on the stock market and some false economic growth statistics for a while, but the tremendous damage that will be done to the economy is just not worth it.
In any event, let us all hope that we see some really great real estate deals over the next couple of years, because in the times ahead land will be something very good to own. In fact, down the road it will be much better to own land than to have your money sitting in the bank where it will continuously decline in value.
Use your paper money wisely. It will never have more value than it does today.
So what do all of you think? Is the "housing Armageddon" almost over, or do housing prices still need to decline a bit more? Feel free to leave a comment with your opinion below....
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everyone misses the most OBVIOUS problem, rising property taxes making the cost of homes even more unaffordable and a LIABILITY............. the government can/will raise them until you can no longer hold on and steal your equity and then your shelter
"rising property taxes making the cost of homes even more unaffordable and a LIABILITY"
owning visible assets in an economic downturn is like wearing a big sign that says, "please tax me until I am broke and destitute"
fortunately California has Prop 13 so property tax increases are very limited (of course that causes other problems but it is good for homeowners)
let's see, if I can't own visible assets in an economic downturn, what should I do ...
in PA this year, our casino's profits offset some of our property taxes.... so the more people lose in gambling the bigger tax credit you get!!! WIN / WIN!! WHEEE!!!!
Remember how gambling was supposed to eliminate property taxes? Casinos are doing gangbusters, but the piddly little checks don't even cover the annual increases.
Go on a permanent vacation in Costa Rica. Cause let's face it, working is becoming a liability too. Just look at all the healthy, 50+hour work week managers there are out there running around only to have a third of their pay taken for banksters, wars, cushy pensions and bad domestic+foreign policies.
Woohoo Johnnynaps!! Now you're on to something. Don't feed the Ponzi.
Best post ever.
What a racket. The slaves chain themselves up.
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Go on a permanent vacation ... . Cause let's face it, working is becoming a liability too. Just look at all the healthy, 50+hour work week managers there are out there running around only to have a third of their pay taken for banksters, wars, cushy pensions and bad domestic+foreign policies.
Exactly; you are punished for working and having assets.
...soon the copper piping in my home wil be worth more than what is owed on it...
tin foil hat time... drop it like it's hot... buy more IYR and join Crazy Ole Uncle Ben and his crew of Bubble Blowing Circus Freaks. Just buy the paper you'll skip paying property taxes.
Ah yes Armageddon. It's an ancient ruin in what is now Israel.
Tel Megiddo today,
California, Arizona, Florida tommorrow.
http://www.bibleplaces.com/newsletter/hr/Megiddo_tell_aerial_from_southeast,_tb121704999pp.jpg
Simple economics- the prices must fall to the point people can afford to buy. Perhaps this is why the government is holding so many mortgages. They would rather they be destroyed inventory, then let prices fall to price equilibrium.
Everything will sell if you let the price fall to where it needs to. Unfortunately, that will diminish everyone's assets. Especially the banks.
How many homes will be turned back for ever increasing negative mortgages?
Malinvestment must be reconciled, before there can be growth in the industry.
While I couldn't agree more with simple supply and demand, I think there are more monsters in the room that threaten any type of housing recovery. TRUST has been lost in the government, banking system, and the job market. 3 excellent reasons not to buy.
who would junk that?
i think you're absolutely spot-on.
they keep trying to inflate the consumer sentiment, but we all live'there' and know better.
trust (or the lack of it) is clearly the key here.
While I agree with the thrust of this article, I note again the unquestioned assumption that "oil is about to go over $100 a barrel".
This despite the fact that, in the face of profound unrest in one of the more heavily populated nations in the word's most famous oil producing area, WTI (the 'sweetest' crude) can't seem to get over $92/barrel. Unrest, I might add, that shows no signs of a prompt resolution, and shows very sign of being contagious.
Those tempted to quote 'The Word of Durden' re oil (or anything else) to us at this point shoul be reminded that, while gold has managed a sharp (but very small) recovery, silver languishes. (Mean reversions of ratios can happen via either component)
Brent crude is over 100 and it is not nearly as sweet as WTI. There is something going on there. In a world where paper manipulation distorts markets, it is just as important to remember not all is as it seems. Prices have been hijacked.
G'day...
Brent does represent tanker deliverable contracts unlike WTI. It tells me that the US is fairly well supplied and that diesel demand overseas (with resulting gasoline being shipped to the States) is driving things. The compression at roll date gives a measure of the hot money in the market, IIRC it was only about $2 (out of ~10) so the spread is real.
Thanks for the info.http://seekingalpha.com/article/248502-how-to-play-the-high-brent-wti-spread
It appears some games may be going on as well as some supply disturbances in the Brent crude.
Nice link.... I sense some double speak though, historically oil has been in backwardation, sometime in late 07-early-08 we entered contango. That signaled to me that market started priceing in a "short term" supply crunch or peak production. Oil now behaves more like a currency than a commodity.
I agree that some games are being played by HETCO, but that was committed smart money, not a one and done speculative bet, IMHO.
The roll is key and WTI expiration; expiration is "the come to jesus moment".
Whatever Govt touches turns to crap
the US Govt has destroyed the US housing market, when will the politicians be strung up??????
Answers on a postcard to: Barney Frank "I had nothing to do with destroying the property sector with either Fanny or Freddie or IndyMac, but I think we should destroy the rental sector now", Social Housing Dept, Democratic Party, US A GOVT SHAMBLES
This quote echos the real problem with the current real estate fiasco.
“If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand”- Milton Friedman
Expecting the gubberment to fix anything is absurd, the gubberment and it's use of FRN's is the problem.
DaddyO
In our next of the woods repossessed homes are selling better than new homes, and that's not saying much.
Are the new and repossessed homes of the same type? When I was looking to move out a couple years ago, I couldn't buy a new house. Literally nobody was building 1-story 2/3-bedroom ranches anywhere, just $250K townhouses and McMansions. The place I did end up buying wasn't repossessed, but all things considered I really would've rather bought new like my parents were able to 25 years ago on equivalent income.
Ned - It's neck ...
Many of the repos here in AZ are selling at half the cost of construction (land and permit fees have zero value). New home builders in this market are insane, I guess they keep building as long as they have the money to build. There are some custom homes going up, people with money just building their "dream homes" despite the fact they spend twice as much as they could buy one for.
The banks don't give a damn about the real estate market, they just dump the repos for pennies on the dollar and send the bill for the deficiency to Fannie, Freddie or FHA. They have wrecked the market for decades to come. The tsunami of foreclosures is yet to come, 2011 will set a new record as more and more people make the decision to walk away.
Local governments will be crippled by the loss in property tax revenue, the lag time is a couple of years for values to decline. We have seen a 50%+ drop in market values, but only about 20% off the assessor's valuations. There will be massive cuts in local, county and state budgets due to the drop in property tax revenues.
and yet SRS is still somehow at all time lows...
a new take and perspective on "too big to fail". very suspicious.
www.foxnews.com/story/0,2933,471004,00.html
http://covert2.wordpress.com
They need to decline a lot more.
This runup has been going on for a long time, for no good reason. I would love to be able to buy a place in the country for a reasonable price.
I would lile to see the value of my house decline. It would deprive the tax eaters of one of their primary foods. But even if it does go down (and in the real world it has), the county auditor will never admit to it.
Just like in the 30's it did not matter if people lost their homes, taxes must be paid.
Living in the country is a tough alternative, but better for some.
In Maine the number of empty houses is exploding, so are home invasions, but funny it does not make the news, go figure.
I think it is a mistake to expect your tax bill to decline. Counties need their tax money no matter what happens to home values. If your valuation goes down for any length of time, expect counties to raise the tax rate to make up the revenue. And since most counties are flat broke right now expect them to raise the rates no matter what.
I appealed my recent assessment which is based on the highest prices paid for homes in my area in 2006 and 2007. I live in Chicago. My house was appraised for mortgage refi purposes at 20% less than the amount at which it is assessed. That was 13 months ago. Prices have continued to decline. I got a letter that said "Congratulations! We have reduced your assessment by 5.5%". Then I got a letter saying they have re-reviewed it and they were taking back the reduction. So I have appealed to the board of appeals. Two sales happened last year (2009 actually) which when interpolated come in below the 20% reduction. The point is that though they may need to keep the money flowing in to pay the pension and benefits on the guys who worked for the city or county who claimed to be disabled but were working a second job while keeping their county or city pay, they can do it the politically difficult way, which is to raise rates on the reduced housing stock value, rather than taking the politically expedient way which is just plain lying about what those values are.
Had a girlfriend in Maine for a while.. No surprise home invasions are not in the paper, so few people along the Penobscot river can read..
Does not matter if your home value decreases, raising the mill rate will keep the county from any suffering especially their unionized workforce..
Is California the new Japan....?? Values already dialed back to 2002 in a zombie real estate sector with massive shadow inventory. Good charts on Dr. Bubble.
www.doctorhousingbubble.com
Housing will bottom when the average home price equals 3x the average income, or around $170,000.00
So yeah, it's got a ways left to go...
Where the hell is 56K an average income? Not even my government job pays that!
will the average income hold?
Praise Ben....you get it !!