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!

Reggie Middleton's picture

I know, I shouldn’t say I told you so but those perma-bullish, green
shoots smoking pundits who have been saying for three years that we are
nearing the bottom in real estate either have an agenda or really don’t
know much about real estate cycles.  It really gets under brother’s
skin… From CNBC:

Existing Home Sales At 15-Year Low, As Housing Weakens


Sales of previously owned U.S. homes dropped more steeply than
expected in July to their lowest pace in 15 years, an industry group
said Tuesday, implying further loss of momentum in the economic recover

We’ve been down this path before. We have every reason to be very,
very pessimistic on the housing front.  We’re in a HOUSING DEPRESSION!

Rates as close to zero as they have ever been, yet close to no demand
while supply is piling up in droves as banks sell more homes (out of
foreclose) than homebuilders do, yet developers keep building! If you
look around in NYC, banks are STILL funding developers who are STILL
building stuff right next to stuff that they STILL can’t sell! This is
video from a little more than a year ago that shocked many, even those
who live in NYC: Who are ya gonna believe, the pundits or your lying eyes?.
If  you take a trip down the same strip today, you will still see empty
lots with tractors, cranes, for rent signs in the commercial ground
space and a whole lot of empty apartments looking for a home owner or
renter, dusty from the construction right next to it.

Way back in 2007, I predicted that banks would handily outstrip
homebuilders in terms of property sales due to rampant REOs and
foreclosures. I issued a reminder last year since the synthetic and
contrived equity rally on vapor volume seemed to have had everybody
forgetting that we were in a real estate depression:

Back to the Homebuilders vs. the Banks

In 2007 I put out a lot of research and opinion on the home builders
and attempted to portray them in a light that the sell side analyst
community and apparently the buy side investors failed to notice. See

In December of 2007 I predicted that they will compete in a losing
battle with the soon to be larger residential home and land owners
looking to move properties at highly discounted prices: the banks
sitting on foreclosed properties – Bubbles, Banks and Builders.

Well, although I do feel I have been relatively prescient in my predictions and predilections, all of you guys who were waiting for me to be wrong can now have your day. As it turns out, the largest residential land home owner will probably not turn out to be Countrywide (see Would you buy Countrywide if all of its bad mortgages were magically wiped off the books?) or any other bank or builder after all, but most likely the FDIC, or in more direct terms – You, Mr. and Mrs Taxpayer, see: FDIC Holds $1.8 Billion in Property From Closed Banks: WSJ Link
There are properties repossessed this year by the FDIC that were
actually also repossessed during the S&L Crisis. Talk about not
learning your lesson!

As lately as the 2nd quarter of this year, alleged experts were
still pontificating the coming bottom in real estate, despite the fact
that unemployment was high, supply was high, demand is low, and credit
is tighter than frog ass! Exactly two months ago, I said As I Made Very Clear In March, US Housing Has a Way to Fall. See the following excerpt…

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 governmetn 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”should
be released withing 24 hours or so. This release will include all of
the raw data necessary for users to run their own calculation and draw
their own conclusions. update, which

Click to enlarge

In the chart above, you can see where
CA has made some progress interms of appreciation. CA, FL, and NV
account for nearly 50% of nationwide price damage. Let’s take a closer

Click here to read the rest of this entry »

Banks have been, without a doubt, attempting to hide the extent of thier inventory and valuation issues. See

Why are Banks Hiding High End Residential Real Estate? Courtesy of the Real Estate Channel:

  • Without the FTB tax credit, the housing market is receiving
    artificial demand and price support from the FHA loan guarantees and
    banks sitting on mortgages of homes once valued at $300,000
  • Banks in areas that were severely damaged by the downturn in
    domestic real estate (Cook County, Illinois, Miami-Dade County, Florida,
    Orange County, California) have significant inventories of homes
    worth more than $300,000 that they will not put on the market, even
    after foreclosures lasting more than 2 years

According to Bruce Krasting over at Zero Hedge, the FHA is “Officially Broke” anyway: FHA – “We are Officially Broke” After perusing the data above, one would wonder why… (Link to FHA/FR)

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anarchitect's picture

Working off this massive inventory, particularly in the high end, has set up a wonderful symbiotic opportunity between repossessors and arsonists. AIG could underwrite the whole thing and then offload it to taxpayers.

Henry Chinaski's picture

Here is an excerpt from Understanding Your Property Tax (Vol. 11, Aug 21, 2010)

by Morgan B. Gilreath Jr,  Volusia County (FL) Property Appraiser

I'm told the foreclosure process is currently taking around twenty-four months.  That's a lot of time.  Troubled loans led the way to a troubled economy.  The current system appears to be overwhelmed.  There is a great need for the creation of additional judicial or quasi-judicial "Foreclosure Clearing Houses" to shorten foreclosure timelines and reduce existing and future inventory.  An important ingredient to any "fix" should be to ensure the integrity of the process and avoid repeating mistakes that could create problems later.  Otherwise a return to normal markets or normal prices will continue to be problematic.

(Emphasis not mine.)


(It's not posted on the web at this time so I can't post the link to the file. I have asked him to post it.)

Steak's picture


I have several friends involved in flipping houses at the very low end of the price range.  They have repeatedly told me that there is no shortage of buyers with one caveat.  The buyers are for the most part asking 10% less than where sellers are at.  Do you have any research that would speak to the question of what price buyers will close en masse or whether there are even large numbers of buyers waiting in the wings?

johngaltfla's picture

Reggie, freaking awesome man. Gloat on. The idiots think that we can have a recovery without 10 of the largest states in the union participating in it. Duh. If Vermont isn't in an economic and housing depression but Florida and Arizona are in one, I wonder which has a greater impact on National GDP. Apparently the Bubblevision crowd still does also.

Freaking morons, all of them.

Psquared's picture

Why would you buy a house now while rates are still going down and home prices are still declining? This thing has to bottom out before it gets better. Karl Denninger is right; it won't bottom out until the average house price is 3.5 x average income. We have a ways to go.

covert's picture

maybe things will change when the illusion of prosperity is gone. hiding the losses compounds them.


Chemba's picture

LOW and HD are both green today, the two stocks most leveraged to existing home sales.

EconomyPolitics's picture

Right on Reggie.  

It's not as if you haven't been warned.  Don't listen to your broker, now is a terrible time to buy.  OK, I'll concede that if you have ultra low rates you can afford more, but if you ever have to sell or refinance, you will lose all your equity.  

All these sheep that say it doesn't matter lose the point.  Any down payment will be gone forever.  


Some past research on the housing market.


Wallace Hartley's picture

Reggie - I appreciate the obvious time and research that you put into your posts.  The information is the only reason I begrudgingly open your articles.  Please, for God's sake, stop sucking your own dick!?!?!

SheepDog-One's picture

BLOW suckers! BLOWWWWW!!!

breezer1's picture

the high end inventory would devastate the low to medium stuff. when survival time comes they will dump the high end for what they can get. needed cash.  great post reg. does your fan club have a site yet?

geno-econ's picture

Last week watched Giethner conduct Freddy/Fanny summit conference.  It was a pathetic example of bureaucratic nonsense considering  history of political corruption , greed of its leadership and what it has done to this economy. Should have invited Reggie rather than staged stooges

onlooker's picture

Buy a home and invest in your 401K stock plan. Every think will be OK.

Mercury's picture

Why are Banks Hiding High End Residential Real Estate?

Banks in areas that were severely damaged by the downturn in domestic real estate (Cook County, Illinois, Miami-Dade County, Florida, Orange County, California) have significant inventories of homes worth more than $300,000 that they will not put on the market, even after foreclosures lasting more than 2 years

I think it's safe to classify a "$300,000 house" foreclosed on two years ago and still owned by the bank as formerly high end real estate.

papaswamp's picture

Just tell me when the zombie apocalypse will occur...that is all I need to know at this point.

JimboJammer's picture

Just  a  hick-up ....  then  down  more....

houses  will  be  real  cheap  to  buy  in  12  months...

hammondo's picture


I will subscribe if you get a remake of this - Staring Reggie as T-Pain. 


It's so you Bro

tony bonn's picture

i am not sure why i read this column today since it is normally a tedious litany of dreary i told you sos but this quote made it worth while:

"....and credit is tighter than frog ass!" lmao

Widowmaker's picture

A frog's ass is water-tight (which comes in handy with underwater loans).

romanko's picture

also the expression: "Tighter than a duck's butt!"

bronzie's picture

One of the recent articles talking about US demographics made an interesting point - supposedly the Boomers will offload 1.5 million housing units PER YEAR as a normal part of their down-sizing into retirement

So, start with a 10 year supply of for-sale housing (real and shadow inventories), continue to add 500-600K newly-constructed units per year and then throw another 1.5 mil units per year on top of that - what does that tell you about the supply situation going forward?

Saw another interesting tidbit about economic bubbles recently - supposedly a financial bubble pulls forward 10 years of demand - ie, the real estate bubble that popped in 2006 pulled forward housing demand from all the way out to 2016 - that means demand for housing between now and 2016 is less than it would be otherwise even before we start talking about all the other headwinds blowing against real estate

Increasing supply and declining demand - how anyone sees a bottom in real estate is beyond me

Spigot's picture

I know a Boomer couple, he a college prof and she a prof pol, now trying to sell in order to "downsize" their dwelling. Its already starting en masse if these people are doing it.

romanko's picture

but where will the boomers downsize to? condos? florida timeshares? cardboard boxes in alleys?

marc_hanes's picture

Perhaps they will not be able to downsize due to a lack of buyers for their homes. I can imagine scenarios where older people are "stuck" in 3-4 bedroom houses much larger than what they "need." In the end it might be a better alternative than trying to sell.

bronzie's picture

The point you are getting at (I think) is that retiree down-sizing should be a wash from the number-of-housing-units-occupied perspective - eg, retiree moves from single-family-house to condo

Some retirees move in with family, some move into assisted-living facilities - in these situations there is a surplus housing unit

And then there is that scary statistic about people tending to die about 18 months after they retire - these retirees make the ultimate down-sizing move and definitely don't occupy housing units

Also depends on where they live - read an article awhile back talking about different retirement behavior depending on where the retiree lived - I'm in SoCal so most interesting to me was that retirees in the Golden state tend to leave California and go elsewhere because of the high cost of living


romanko's picture

My question had a vested interest behind it; I wouldn't mind unloading my bachelor-sized condo (in Toronto) soon, then I'll put the proceeds into 3X-long ETF Cemetery Plots fund, gotta stay 1 step ahead of the curve!

whiteshadow's picture

@william....u think his works r like that of a trial lawyer...I think so do. has all the bits covered with facts...well its opinion based on facts so yea....its good

about housing, with tax breaks gone, and unemployment so high..(jus wander what the real figure looks like...not the one that media n the admin wants us to see)...who can even expect a better news,,,btw,,,first of all y is anyone  even thinkin they will hear any good news on housing,,,,more pain to come,

StychoKiller's picture

"When the Law is on your side, pound the Law.  When the facts are on your side, pound the facts.  When neither the Law or the facts are on your side, pound the table!" -- Abe Lincoln

AssFire's picture

Property taxes, death taxes now coming is a 3.8% tax when you sell your home in 2011 due to ObamaCare...Not on the equity, but the whole sale! <blatant attemt to keep people from sucking out their "nest eggs".>

They have killed the golden goose (tax paying homeowner).. giving too much to the people who carry no water.

I look forward to the day of downsizing and already plan to defer earnings to be under the 250k "rich" tax threshold. I am doing as much business as possible in the next 4 months and I will suck the company dry this year. I will look forward to rehiring and taking some risk once the small business owner is no longer looked upon with contempt.

With nowhere to put the money; banks on the verge of collapsing, stock market a full blown corrupt casino, and bonds looking more ponzish, realestate taxed too the gills- Gold, Silver and watching the economic tsumani hit will be in my plans.


Marla And Me's picture

Sorry AssFire, your 3.8% claim doesn't check out:


It's a 3.8% surcharge for individuals making more than $200k ($250k for married couples) on any profits greater than $250k, or $500k for married couples.  This IRS exemption applies only if you've lived there for 2 years, and the home qualifies as your main home.  Your claim would be correct for 2nd homes and vacation homes, and those would be taxed at 3.8% since they would not qualify for the exemption.  It doesn't make it right (I hate soaking-the-rich populist talk just as much as the next guy), but your 3.8% tax on the whole amount of the sale claim of any home is just plain wrong.

AssFire's picture

Thanks, I won't be as stupid anymore.

RockyRacoon's picture

I get this stupid-ass email scare from "friends" lately.  Thanks for the link.

DosZap's picture

This is just the beginning, the Oldest of the Boomers are dying off, and leaving empty homes, free and clear, to their kids, with no buyers.

Adding to the already 20yr over supply.

This is one reason we are fighting (dems) so hard to keep Illegals here, birth rates are at negative growth.

They have murdered 50 million taxpayers, so we have to make up for them, with foreigners.( to what jobs?).

Whadda a deal.

Almost Solvent's picture

But wait, who is gonna pick our apples and beans and such other menial jobs.

Agribusiness and the chamber want illegals just as much as anyone else.

Time to look past party lines.

Lucky Guesst's picture

There will be enough teens to work the fields after mom and dad have to steal their fast food job.

Sherman McCoy's picture

A house should be treated like abond investment - Buy 'em at 80x/monthly rent and sell them at 200x. Cap Rates at 4% are just silly, when you can buy JNK at 10%.

williambanzai7's picture

I know its not funny, but I laugh every time I read your posts. You should have been a trial lawyer.

tahoebumsmith's picture

NY starting to look like the Chinese pipedream...

MarketFox's picture

The REAL problem....

What bank wants to make long term loans at these unprecedented low rates ?

Had enough of the "Princeton Harvard Yale Club  " yet ?

And just how is it justifiable to tax 100% of retirees' incomes ?


All of THEIR heads need to be on poles....all of them....they have ruined the USA....




Millennial's picture

Ben might be a failure at Central Banking, but I bet he's a god at rock band 2.

MichaelG's picture

I shouldn’t say I told you so

Who are you, and what have you done with the real Reggie?  ;O)