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The Next Leg Of The Housing Crisis In Five Simple Charts
Everything that the government has done so far, with a few minor detours, has been almost exclusively focused on maintaining home prices high, by tweaking either the supply or the demand side of the housing equation. As the bulk of consumer net wealth is concentrated in the housing sector, and a wealthy and confident consumer, much more so than the banking system, is critical to the recovery of America's economy, the Administration will do everything in its power to achieve its goal of artificially manipulating the housing market, thereby not causing an incremental loss of wealth to those still stuck with overpriced houses, while the real intersection of actual supply and demand curves would indicate a materially lower equilibrium price. This is ironic, as proper price discovery is critical for a true recovery, since Americans realize all too well that buying a house at prevailing levels in advance of the second down-leg in housing is senseless, the continued pursuit of such flawed policies by the Fed and President Obama merely pulls the market ever further away from its equilibrium, thereby making the anticipated second dip so much more likely and not that far off in the distant future. Below are 5 simple charts the highlight just how precarious the housing situation in the U.S. is, and how likely the second, and probably much more fierce, leg down in the markets is going to be.
A bearish report by CIBC 1captures precisely the highly unstable system that U.S. housing has become, and deconstructs it along the five key axes of weakness which while individually may be controllable to a degree, combined represent a recipe for disaster. CIBC's main sources of concern arise from:
- Short-lived remedies; used by the administration to prevent further price deterioration (tax-credits);
- Shadow Inventory; in reality when accounting for the surging shadow inventory which very few dare talk about, the total number of available unit sdouble to over 8 million, representing a record high 16 months of supply.
- Strategic defaults; the amount of households with negative equity is roughly 10 million or about 20%, in 2009 25% of all foreclosures were strategic; as populist anger against banks accelerates look for strategic defaulits to keep rising
- Quantitative Easing expiring; This needs no introduction: the sole reason why mortgage rates have been as los as they have, has been due to the Fed's constant manpulation of the MBS market via the $1.4 trillion MBS/Agency QE purchase program. With this program set to expire in 2 months, rates are set to explode.
- House Prices are already entering a double dip; Previously we discussed the Case Shiller NSA home price index number which indicated that a double dip in prices has already commenced. A positive feedback loop will only lead to further deterioration here
Analyzing CIBC's factors one by one:
Short-lived remedies
During the past year in which the program has been in effect, sales of existing homes have climbed by 15%, while new home sales have actually dropped by 5%. In fact, the usually stable sales ratio between the two has more than tripled, recently hitting a record high 18 (Chart 1). But after being extended once by the Obama Administration, this tax credit will expire at the end of April—putting downward pressure on demand for existing home sales. That prospect will make it more difficult to clear out the next wave of foreclosures, prompting another down leg in US house prices.
Shadow Inventory
the risk of a double dip in US home prices is not simply the result of properties being sold at “fire-sale” valuations, but also due to a deluge of shadow inventory coming onto the market. Although conventional inventories are trending lower, shadow inventories, capturing seriously delinquent and bank-owned properties, are just as large.
There are close to two million mortgages that are more than 90 days delinquent, and nearly all of these will end up in foreclosure, given that over the past three years the “cure rate” of this category fell from 40% to less than one percent. Add to that the 2.3 million properties that are in foreclosure or already seized by banks, and total inventories (conventional and shadow) are now running at over 8 million units (Chart 2). At current sales rates, that adds up to a record high 16 months of supply. True, this “shadow” stock will not hit the market all at the same time as banks manage their supply of seized properties, but this constant flow is likely to keep markets depressed for a while.
Strategic Defaults
A big part of the problem is a still weak labour market, which has left a record 15 million Americans unemployed and another 9 million underemployed for economic reasons. However, just as significant is the roughly 10 million households in a negative home equity position of worse than -20%, for whom strategic default - failing to pay when one could - is a very real option. While negative equity is a necessary but not sufficient condition for default, it’s a clear risk; out of the 2 million or so foreclosures in 2009, roughly 25% were strategic (Chart 3).
Quantitative Easing
It’s not just inventories and tax credits that are looming large over the housing market, but also interest rates. Aggressive central banks’ rate cuts along with large amounts of agency MBS purchases by the Federal Reserve have lowered mortgage rates by over 100 bps since the height of the financial crisis. That spurred a refinancing boom, which, according to First American Corelogic, saved $2.3 billion in mortgage payments—a roughly 10% reduction—in 2009 alone. Although we don’t expect policymakers to raise the fed funds rate until 2011, mortgage rates have already started to head higher, and could keep climbing towards the end of the first quarter when the Fed’s $1.25 trillion agency MBS purchase program is completed. Those purchases made up almost 50% of all MBS issuance last year, and despite the improvements in the securitization market, their absence will likely have a material impact on rates (Chart 4).
Price Double Dip
In the final analysis, the end of unprecedented government tax support for housing, along with the looming overhang of supply and a higher cost of borrowing will keep new home building activity trudging along at historic lows over the next two years and could see prices drop again by 5-10% (Chart 5).
And there you have it: the best that the government can hope for is to extend and pretend, and to avoid presenting the sad but very simple reality to the American public. Because lack of knowledge is half the battle. Alas, as long as the reset button is not pushed, the only beneficiaries are the very same Wall Street kleptocrats who want nothing more than further perpetuating the status quo. At this point nothing absent a complete socio-economic catharsis can help America; the rest is just Congressional hearings, angry presidential outbursts scripted on the teleprompter, and neverending smoke and mirrors.
- 1. U.S. Housing - A Double Dip; Benjamin Tal and Meny Grauman, January 28
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These big banks are not listing all the vacant houses they have.
A Realitor in Fort Myers Florida told me this.. They won't put a for
sale sign on every house right now because it will Flood the market.
Lower prices coming for houses...
....and sooner than later that nasty old cash flow boogeyman darkens the Bankster doors......sure as night turns to day.
Of course they can't put signs in front of every home available for sale--otherwise even the dumb public would then realize that an $8,000 tax credit would not offset the losses they will soon realize when home prices fall another 10% to 20% (which they would have done if not for the actions of our fearless leader Barry Soetoro).
Good point
incentives serve to shuffle ownership into hands capable of servicing debt--this time more conservatively underwritten. yet another win for the banks
...and a massive loss to the U.S. taxpayer. The number of new FHA loans currently going into default on houses bought via recent government support isn't exactly something to write home to mom and brag about.
But hey, the banks have won big time. Then again, where would the banks be if they had acted intelligently and this downturn never happened in the first place? The country would be a LOT better off, and the bank execs would have earned a lot less in bonuses.
Great, maybe this time the people will revolt.
Of course there will be a second wave of foreclosures. This one will be blamed on ARM mortgages. I suspect rate increases shorty to get this party started. The wall street merchant bankers want you to foreclose because they end up making more money in the process.
Only a complete moron would wish that people will revolt.
I only hope that if people do revolt, the eventually turn up at your doorstep.
From Fannie Mae's own numbers -
Conventional single-family serious (90+ days behind) delinquency rates of loans are as follows;
January
2007 - 0.6%
2008 - 1.0%
2009 - 2.5%
2010 - 5.29%
A four year trend that is not conducive to a healthy housing market.
maybe you should post the 2009 activity because i would thought it bottomed at some point or has it really gotten worse and worse MoM?
Don't confuse foreclosures with delinquencies. Foreclosures dropped, but delinquencies continue to increase. Eventually, these will become foreclosures.
Banks may not be foreclosing as quickly due to asset valuation impact concerns, or simple lack of resources to process the escalating delinquencies. Either way, it doesn't paint a pretty picture.
Banks may also not be foreclosing in an attempt to avoid taking on the risks of being held liable for back taxes. Have you seen the statistics on delinquent property taxes?
Property taxes run with the property as do other municipal liens. In many states the Condo fees also run with the unit. So this is not a reason to postpone foreclosure.
Bank have other reasons, like their Ratios...
Doesn't the bank also assume the burden of keeping up the home once they foreclose. I mean after all, someone has to pay the property tax, school taxes etc. And if the bank is the owner, they are on the hook no ?
This is a good reason *not* to foreclose too quickly
Doubling every year. The good news; it can only do that for four more years.
ROFLCOPTER
Chart 2 is current only to March, 2009, but the article says the housing supply is good for 16 months----is that as of March 2009, meaning there's only 7 mo's supply left?
Yes we all know--that's called shadow inventory.
Nothing new here, but it is worth repeating to hopefully prevent a few folks from being suckered in to putting their equity in the housing market today. Can't fault someone for buying with a no-money-down FHA mortgage, but keep your downpayment for another year, you will be glad you did.
FHA has battened the hatches down. Friend's buyer got turned down because he was a prime buyer pretending to be a sub-prime..
On the way up, they pretend to be richer than they are
On the way down, they pretend to be poorer than they are
Does this country have too many liars to recover?
+1
"the only beneficiaries are the very same Wall Street kleptocrats who want nothing more than further perpetuating the status quo."
Bring them down to yard after dark. Throw them over the fence one at a time every 4 minutes.
Banksters are waiting for the Spring HomeSale extravaganza for motivated first time buyers flush with ObamaCash. Car guys are thinking the same thing.
Yeah, that oughta' work.
Yeah, that oughta' work.
Well, sadly, it just might - for a little while longer at least (or, they hope, until at least mid-November 2010). Honestly, I'm simply amazed at how long these clowns have kept all those plates spinning. Sure, they're eventually going to start to drop - and when they do it's going to be really, really ugly - but that it hasn't happened yet is quite incredible.
I don't think they can kick the can much longer. They made a big change to HAMP starting today where participants are kicked out after 3 months if they haven't submitted the required docs. So today there are literally tens of thousands of mortgages that will be entering the foreclosure process. That doesn't mean they will be foreclosed upon immediately, or at all, they may go short sale, but the extend and pretend period is ending.
Why would the government do that? Because they realized people were gaming the system, using HAMP to extend the time they could get free/cheap housing. Remember under HAMP the incentive was to understate your income so you could get the lowest possible mortgage.
So people were defaulting, then 9 months later they went into HAMP and claimed they were barely making anything so got 3+ months of lowered payments, and dragged their feet on submitting paperwork to milk it as long as possible. It was creating a nightmare, so as of today it is at an end.
The next leg down has already started, it should pick up speed in the coming months.
well said ghost.
I completely defer to your expertise in this matter. However, if you might permit me a cynical view of current events:
1) Short lived remedies - will be extended indefinitely and increased as necessary.
2) Shadow inventory - will remain in the shadows indefinitely.
3) Strategic defaults - will increase over time, but since banks can mark-to-whatever-they-fricking-want, who cares?
4) Quantitative easing expiring - so they say. Giggle.
5) Housing prices entering another dip - bah, just statistical fluctuations. Turn up knobs 1,2,4 above if it is real.
Seriously, since it is not in the interest of TPTB to do things that will essentially wipe out the banks, they won't be done. And since it is not in the media's interest (either for political or financial reasons) to make the general public aware of what is going on, the public (with the minor exception of the increasingly astounded readers of select blogs) will remain ignorant and there will be no 'spark' to incite the rabble beyond a few tea parties which will be widely ridiculed if reported on at all. Regarding the changes to HAMP - as much as the idea makes sense, I guess I will believe it in 3 months if the deadline doesn't get extended (indefinitely) or if it is actually enforced.
It seems to me that those in charge have only one option left - hold things together by any means necessary and pray for a miracle or at least something to blame the crash on. As they are aided by a compliant media and largely distracted public, I fully expect to be surprised by how long the final resolution will be delayed.
Sorry for the rant, but now I do feel a little better.
Good points.
HAMP will help but the Real Estate sector has lots of lobbyists.
its not hte real estate lobby its the banks
Actually, it is ALSO the real estate lobby. They were pushing Congress to extend the $8000 tax credit. It's a circus.
"It seems to me that those in charge have only one option left - hold things together by any means necessary and pray for a miracle or at least something to blame the crash on."
War on Iran for a distraction?
http://www.msnbc.msn.com/id/35161735/ns/world_news-washington_post/
http://www.presstv.ir/detail.aspx?id=117487§ionid=351020104
Don't let it happen!
Join www.campaignforliberty.com and take action.
Things that cannot continue indefinitely, won't.
Nice skptical response
Your phrase "pray for a miracle or at least something to blame the crash on" made me remeber this ---- the system worked
http://www.investorvillage.com/smbd.asp?mb=3532&mn=39037&pt=msg&mid=8530439
Shadow Inventory - just another way of saying tomorrow's section 8 housing.
More Section 8'ers created every day, therefore, convenient and according to plan.
Many do not realize that oBOMBa cash is taxed, just wait until April 15th THIS year when all those who took advantage of 'free' cash get the bill.
Mr. Durden, Sir. What you are saying is that home prices will certainly be lower in the future. Only a fool would buy now, the wise among us will wait for the lower prices.
And that, boys and girls, is the deflation mentality that will lead us straight into the Greatest Depression. Oh, that plus global debts being greater than GDP and so on and so forth, blah, blah, blah.
I'm all cash and hungry to buy stuff cheap.
Right you are. It seems the key for those with cash will be timing. Need to wait just long enough so that you buy at the bottom, but not so long that (a) currency collapses and your cash is worthless, or (b) deflation/depression hits full scale in which case your cash will be frozen by bank holidays / money market freezes etc. I'm guessing some luck will be required.
Well summarized, Tethys. I've been noticing that your posts are always quality btw.
Thanks! Given the general quality of posts on this blog, I am honored indeed.
/salute
Bingo.
What's the worry? We're all experts at timing the market, right? And surely TPTB wouldn't allow a deflationary spike that strikes unannounced, and collapses the currency without giving anyone time to react...would they?
It's timing for criming till the bells start chiming.
Ask not for who the bell tolls for it tolls for thee.
Great post, and why gold is a way to hedge against currency collapse.
The way things are going, you will soon be able to afford a nice house by plunking down a few 1 OZ Gold coins----
More and more, I am long both silver and gold--
This will not end well for our fiat currency!
Yes and no - I took it to say that those who are "baited" into purchasing may have regrets. The point is valid. Your presentation of "The Paradox of Thrift" not withstanding, I don't believe that the "duty" to spend is a valid rallying cry anymore. Did it work after 9/11? Did it really?
Don't buy too soon
In Cash -- You mean you are not a gold bug?
Most people can contemplate major deflation and major inflation and think that gold will be "up" regardless
but gold has gone up in deflation and inflation: 1929-1935 and 1965-1980. it seems to have something to do with stocks and bonds doing poorly and currency debasement.
It was once proposed in the Roman Senate to have all slaves marked, to more easily distinguish them from Roman citizens... it seemed OK until someone realized it might not be such a good idea to let Roman slaves know just how many of them existed. Better not encourage revolts and riots...
The non-disclosure of the so-called Shadow Housing inventory is but one more piece of the Smoke and Mirrors show, to keep Americans from rioting in the streets.
Our governments and the Banksters have not accepted that continuing to rob our economic future by printing, borrowing, postponing, and outsourcing has burned out the engine of the economy.
This economy is jacked up on wooden blocks and our politicians are making the vrooom,vroooom, sounds, trying to pretend they have a real engine.
It is truly pathetic to watch this gong show.
http://www.scribd.com/doc/22733555/A-Forecast-For-Real-Estate
Mr Kayman,
Yours was the smartest post of the day.
Armstrong Economics and you are in agreement.
America is OVER unless we take it back from Banksters
http://www.takeitbackday.org/Website_Summary.php http://www.takeitbackday.org/+1 for speaking the real
-1 for having to clean off my monitors.. "jacked up on wooden blocks..." EPIC
Vroom, vroom, vroom. Beautiful.
http://www.insanity.net/vroom.shtml
I can't see that. I think it's the original vroom vroom insanity test but since flash sucks I can't tell.
Here's better link.
http://www.youtube.com/watch?v=H-7XoDP5VVI
kayman, thats poetry. Thank you.
Vrooom, vrooom..... you reminded me my childhood.
I live in a decent middle class neighborhood in CT where the average home price was between $150 -300K. A neighbor, good friend of mine, dry wall / sheetrock guy by trade qualified for a zero down $185K mortgage @ 6%. Needless to say, without much need for a guy that does drywall, his family has been living rent free for 16 months. GMAC wrote the mortgage and they haven't heard from the bank in 8 months. Every morning I wake up, looking to see if there is a sign is on his lawn, wondering when the bank will come for the house. Similar homes in the neighborhood are going for $100 - 120. You calculate the bank loss. Guy wasn't in his house a year before failing to make payments. Shadow inventory, how many homeowners having been living in their unpaid homes for +2 years. What is going on in this counrty....
I find it hard to believe there are homes in a CT middle class neighborhood that are selling $100-120K. Here in Southern New Jersey, housing prices really haven't declined that much from the peak. I'd like to see housing prices fall 20% around here but I don't think it's going to happen.
Real estate revulsion is coming. Be patient. Old mindsets die hard.
Those would be the asking prices? There is a lot to be said about unrealistic expectations. But hey, don't worry, the Administration's engineered inflation will raise the prices of everything and make all those people feel better when they get taken out at a heavily taxed profit.
Change we can all hope for?
"his family has been living rent free for 16 months. GMAC wrote the mortgage and they haven't heard from the bank in 8 months"
Repeat that over literally millions of mortgages around the country: the 90+ late population is over 4%, as is the number in the foreclosure process, out of about 55MM homes with mortgages, 8% * 55 = 4.4M households who haven't paid in at least threee months, probably longer.
Meanwhile the banks are assuming the cure rate on those will exceed 50%.
A huge hidden stimulus.
I rent in a nice neighborhood here in Sarasota, but the owners of the house across the street abandoned over a year ago and left us the key. We sometimes raid the odd hardware as it is closer than Home Depot, and use the garage for extra storage. No sign of foreclosure yet, and we ain't buying.
I can beat that. A carpenter friend of mine, in Florida, hasn't made a house
payment in over 2 years. Not a word from the bank yet. Have to wonder
how many of these exist......
Once it has become standard operating procedure for underwater homeowners to "put" their homes back to the lenders...
portolio lenders will have to reduce LTV and increase risk premiums (interest rates) to compensate.
Only GSEs will offer below market attractive financing which will be very costly for taxpayers as underwater homeowners "put" their homes back to the lenders........
To your point, the put option on an FHA mortgage is already grossly underpriced.
I wouldn't want any house larger than 2,000 sq. feet going forward. Those home buyer grants will be a distant memory as you write checks for massive heating and cooling bills going forward under anything resembling cap and trade. (Not to mention property tax bills to pay for fat local government salaries)
The trend going forward will to substantially smaller dwellings. I wouldn't want to get suckered into buying a 4,500 sq. foot and up monster right now.
If you want the space in the future, you need to get it now and retrofit for maximum efficiency. Solar everything, insulate the shit out of the walls, double-pane windows, etc.
Don't want it...less is more.
You don't own your material possessions, they own you.
Live more simply, and be much happier...try it, you'll like it.
Well Said.
"At this point nothing absent a complete socio-economic catharsis can help America; the rest is just Congressional hearings, angry presidential outbursts scripted on the teleprompter, and neverending smoke and mirrors."
Yes, if there is to be a way out of this crisis it will not come about through the franchise or some parliamentary remedy. It is simply too late for anything of that kind. The changes wrought cannot be half measures, they must be root and branch, an authentic peoples' solution. The trigger will be the ever increasing unemployment misery. And the signs: Massive public protests and strikes.
"I demand that the dogs be shot-every one of them!!" This was the cry of a foaming Andrei Vyshinsky, the Soviet chief prosecutor, near the close of the first Moscow show trial, in August 1936. The object of his fury were the sixteen defendants sitting in the dock, accused of plotting to assassinate Stalin and other Soviet leaders. The next day, a screaming headline in Pravda echoed his demand: "The Mad Dogs Must Be Shot!" And indeed they were, each of them dispatched with a bullet to the back of the head.
Shhh!
"I demand that the dogs be shot-every one of them!!" This was the cry of a foaming Andrei Vyshinsky, the Soviet chief prosecutor, near the close of the first Moscow show trial, in August 1936. The object of his fury were the sixteen defendants sitting in the dock, accused of plotting to assassinate Stalin and other Soviet leaders. The next day, a screaming headline in Pravda echoed his demand: "The Mad Dogs Must Be Shot!" And indeed they were, each of them dispatched with a bullet to the back of the head.
you have a good grasp of the situation.....i pester
my congressshits to no end but it accomplishes
nothing....the tea parties had the right idea
but the visible protest must deepen and result
in the removal of repub / dems....
even then, until the fed is razed to the ground
and the cia vaporized into the ozone there can
be no true revolution....
So entrenched is the ruling class, so monolithic the two-headed facade they employ, that recourse to ordinary devices is utterly precluded. Ultimately there will be a peoples' moment and it likely will assume the appearance of the protests undertaken in Poland in the early 1980s. There, of course, the whole people rose peacefully against the regime. And what's more, they succeeded when no one suspected that they could. Who could forget the banners in Gdansk!
"Massive public protests and strikes."
Problem is we're talking about 21st century American here. We're not in the 60s anymore.
And don't forget they have the drone planes developed in Iraq
And it's still winter - gotta get real bad before people riot in the winter.
.gov spending on UAVs has been huge. Those 30,000 troops for a surge in the sandboxes? What a joke. It's more plausible they are putting them over there so that they don't join in the strikes back home. Showing up to a protest with an angry sign is showing up to a gunfight with a knife - .gov has all kinds of fancy toys to keep anger off the streets:
http://www.youtube.com/watch?v=DAwmX5O-FAE
http://www.youtube.com/watch?v=gH1CqBpjDt4
These are probably set on low power. They can burst eardrums. Keywords: "unlawful assembly": 3+ angry citizens with an unapproved message.
The people who perfected the art of protests and strikes are running the show now. Why do you think the US has become more of a police state -- Terrorism?
If I am looking to purchase, is it worth it trying to buy an interest rate forward contract? Would the cost possibly outweigh the benefits or is there a better way to take advantage?
A few things:
1. I'm a first time home owner, 1 year now, looted while i could.
2. I'm fully prepared to eat the 20-50% decline in equity in the house.
Things to ask yourself & partner when purchasing:
1. If you Never move and live in the house till the day you die, will you be happy? - If in doubt, its not the one.
2. Drink the water. You'll be drinking it everyday.
Other then that, Fixed rate all that, but really, watch the interest rates, they will be the key, watch for the spike to 6%+ & the sell off in housing at the same time.
And remember, a lower equity balance at a higher interest rate is better then high equity and low interest. :
187K @ 5% == 115K @ 10%
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx
We are looking to buy our final resting place home in the Lower Fla Keys . Prices IMHO opinion are still inflated . Lots of hangers on , living in price fantasy land . Gut tells me to hold out for awhile for next leg down . I did the same calcs you suggest with lower price higher mortage rates - its about a wash if you drop and raise each same percent . Just really need to get out of these nasty northern winters , which just add needless depression to that already felt due to our criminal economy and politicians . Water down there is the best I have ever imbibed in, or bathed in . Big Pine Key has its own freshwater source from the oolitic coral limestone . Agree with homeselloff at 6%
rent?
Im a realtor in nw indiana suburb of chicago. Banks are canceling the sherif auction homes the day before the sale every single month for over a year even the ones that have been vacant for over a year. I dont think they can afford the write off's is what i been told. out of the 400 that go every month only 4 or 5 are sold every single month
Exactly, they can't afford the writeoffs. As long as the mortgage is only delinquent, hey can assume 50% of them will cure. Once they take posession as REO, that facade is gone and they have to book a loss.
Well then, GUESS WHAT?? It is time for these festering foreclosed DEBT TRAPS to be priced another 25% LOWER!!!!
Americans are waking UP!!! A house is a lousy investement!!
Why tether yourself to an massively-overvalued and rapidly depreciating asset, when you could RENT the same place for less than half the price, AND invest your money or buy precious metals as a hedge?? Anyone buying now is NUTZ.
I might buy a house. It's $30K cash, neighborhood value about $165. Needs $20K in repairs. I pay $1200 in rent otherwise. I figure I'm saving if it takes longer then 3.5 years for the entire economy to implode. And even if it does...a house isn't just a investment - it has much more room to store guns :)
I might buy a house. It's $30K cash, neighborhood value about $165. Needs $20K in repairs. I pay $1200 in rent otherwise. I figure I'm saving if it takes longer then 3.5 years for the entire economy to implode. And even if it does...a house isn't just a investment - it has much more room to store guns :)
I have been watching the housing market on various websights {foreclosure.com, trulia, ect} things are realy rolling up . There are a lot more foreclosures than ever before and noone is buying. Why buy a foreclosure from a bank when they are asking 2005 prices. Its a joke . I refuse to buy and help these banks out . Homeless and wandering city to city {with a boatload of cash}
Actually its much worse than you let on, demographically speaking most existing homeowners with equity are going to die over the next 10-20 years (baby boomer bubble), this will create a huge glut of homes with no equal income replacement buyer meaning the people that move in will be demographically less skilled and less educated earning less with a far higher debt burden (immigrants), this is not the formula for higher house prices.
I'm sure the state's solution will be INCREASED MASS IMMIGRATION, and an outright kabosh on new home construction combined with intentional destruction of viable homes ala "cash for clunkers" except for homes to reduce the "oversupply" of cheap homes & grow demand.
The above of course wont work and will simply just lower living standards with increased densities.
exactly!
but the oligarchs do not care....america's
and the world's corporations are transnational
and absolutely do not give a fuck about the
economic destruction they wreak....
it is no longer necessary for america to be
financially healthy for intel to make billions...
they can cherry pick across national boundaries...
the usa could become a 3d world country and it
would mean nothing to intel's bottom line...same
for coke, exxon, etc ad nauseum...
A friend has the theory that the banks want to hold all the houses. I hadn't thought of this, but what if banks did hold %30 of the available RENTAL stock? Ooops, they hold all the cards again!
I think I read or heard something last fall that Fannie & Freddie were given the authority to rent out REO. Maybe I heard it on tv or radio, because I vaguely remember the commentator or guest say "But then the GSE's become responsible for all the fixing-up expenses."
Federal govt intends to become our big-time landlord.
Maybe this is the driving force behind all of this mess demogaphics
The banksters faced with the dilema of demographics decided to lower the price of everything ---- including the dollar ---- there I go again
Combining inflation and deflation in the same sentence a if they both can co-exist
Thank God for Fannie and Freddie. "All you can eat mortgages" coming to a theatre near you.
What a fu@king disaster is coming our way.
From Fannies's own numbers -
Conventional single-family serious (90+ days behind) delinquency;
January
2007 - 0.6%
2008 - 1.0%
2009 - 2.5%
2010 - 5.29%
Getting worse each year. Gonna get a lot worse before it gets better.
I'm guessing 10% before the end of the year. Unless they actually start taking some of the delinquencies and actually realizing the losses, which of course is worse.
I would like to know how many of those 90+ days delinquent are approaching one year? Shadow inventory - the bank gets a caretaker for free, delinquent homeowner gets free rent, bank gets to hold off on foreclosure, therefore off the balance sheet. Win. Win. Until its time to pay the piper for dancing to the tune! WHAM!
no cash flow for bank and the caretaker may make a mess on the way out.
Check this site out for most up to date information. Click on each bank in the box, then you can check the delinquency timeframes. I would like to know how Wells Fargo reported profits with their loans looking like blood in the Red Sea. This site has a lot of information taken from real data.
http://www.wlmlab.com/main.asp
Pricing discovery in housing = No reserves for banksters
No reserves for banksters = Financial crash - reboot
Pricing discovery in housing = Anathema to powers to be
Banks are capitalized heavily by by mortgages and MBS, every realized $1 loss equals $10 loss of credit banks can create.
If banks leverage was not on the line, houses would be foreclosed tomorrow, or principal to mortgage holder would be written down to something less than loan and more than bank would get after foreclosure. But not going to happen as long as banks run the show.
Andrei,
Whenever the masses get honed in on some financial shenanigans, a war props up and the attention span of America has a new shiny thing to be distracted with.
They got the grid in place to put the clamps on these days and I think before a cathartic revolution were to manifest fully, a full frontal martial law would be enacted, military roadblocks and the rest.
There is a school of thought that suggest they don't need to, so long as the populace is pacified by whatever means to stay asleep to the coming financial reboot; but if the suggesting is for populace revolt and protest, God bless you but I think that would get thrawted ahead of time.
Plus, why would squatters revolt if the Sheriff don't come knocking on the door?
Shiller was leaning towards a double dip in housing and the economy in an interview last week from Davos
Man... your three eyed anony avatar is almost as good as that Michael Jackson in the Pepsi commercial anony avatar where the top of his bag is on fire...
I haven't seen that bag on fire anony in a while. That was classic. Three eyed ANONY... your the runner up though...
'It Will Be Terrible' Economists in Davos Look with Concern to 2010
http://www.spiegel.de/international/business/0,1518,675295,00.html
The biggest pieces of crap, most over-priced houses in central ok are foreclosures. Dem banx iz INSANE!!
I am now seeing a bunch of newer 3000+ sq. ft. houses go into foreclosure, some never sold even once. They will be the next biggest most over-priced pieces of crap in town. Banksters = the new slum lords.
Buy now, or be priced out forever!
Besides, they aren't making any more land!
Also, you can't live in a stock certficate!
And don't forget: Renting is just throwing your money away!
Yea, I got into it with a Realtor and posed the following question:
Which is the better numerical situation - A) You rent a comparable house to what you are interested in (if not the one you're liking) for $1100/mo OR B) You loose $30-50K in devaluation in the next YEAR (not to mention next couple). I got the "Rent is just throwing your money away" shtick before I asked that... Let's just say it shut that conversation down quickly and "we agreed to disagree."
Brings to mind the saying - "it's hard to get a man to understand something when his salary depends on his not understanding it."
Lovely sales pitch...lol
Suzeanne researched this...!
This listing is special, John. You guys can do this!
http://www.youtube.com/watch?v=zcTjhXSmnmc
The looming increase in inflation will force the fed to raise rates ultimately leading to higher mortgage rates. Predictions vary but most are saying at least 1% next year and 3-5% over five years.
So if I want to purchase a $330k house with $30k down, right now I can get:
$300k @ 5%, $579k in total (premium+interest) payments assuming I don't prepay anything
or wait one year and get:
5% lower price, 1% higher rate
= $285k @ 6%, $615k in total payments
or maybe a 10% lower price
= $270k @ 6%, $583k in total payments
Either way, right now looks very close to optimal price/mortgage rate.
So in your little scenario, housing is going to become even *less* affordable??
I want some of what you're smoking....
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Spoken like a true realt-whore. You just can't buy a house without the bank in the middle anymore?
Wages rule. Interest rate hikes will PLUNGE cash prices into the basement. Optimal my ass...
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If you're in California, you get lower taxes for life on the lower basis. Of course, I don't believe they'll leave Prop 13 in place, but at the moment it's still there.
No, when you buy a house, the interest rate is variable during the loan period, the principal you owe is not.
How many people don't get the fact that when you sell a home, you have to cover the principal price to payoff the mortgage and not the interest rate. Also, when interest rates go from 5 to 10%, the effect is to cut the affordabilty in half. Why do people not understand this? Look at the prices of homes duirng 1981 to 1983 when many large cities were selling homes for the average cost of a new car.
in the last deflationary depression real estate that went for a million in 1929 went for 25,000 in 1942. past performance is no guarantee of future results but just sayin'.
Looming increase in inflation?? Where? NO way son - first we got a whole lot of deflation to go through. Don't hold your breath for the rates to rise anytime soon...
CA Begins Razing Buildings
http://www.youtube.com/watch?v=Q+M-ai3mVB4
Commercial buildings are being bulldozed in California as a solution for the glut of supply.
Indeed, WTFIGO?
don't forget the destruction of food crops in a hungry nation in the new deal (and i'm a bit of a new dealer myself). the subsidies based on supply restriction enacted then are with us today and benefit, primarily, the rich.
FHA to allow flippers - new change to the rules!!!
As it will be in the future, it was at the birth of Man --
There are only four things certain since Social Progress began --
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire --
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins
As surely as Water will wet us, as surely as Fire will burn
The Gods of the Copybook Headings with terror and slaughter return!
excerpted from The Gods of the Copybook Headings
Rudyard Kipling, 1919
The MBS buy was to save the banks and hold off deflation.
The real issue with Mortgages are not the rates, it is in getting credit. Without FHA, mortgage credit would be very difficult to get, and especially difficult if you are a distressed borrower. The actions by the FED are least pain for the bankers and politicians. The strategies are not long term. Mortgage defaults are ongoing, but perhaps some of the big banks may be able to survive their losses when recognized.
The general question is why would the FED try to keep RE prices above sustainable mean wages?
Just to put this into perspective, the Superconducting Super Collider (Big pure science project) in Texas was halted because of its $14B price tag. Just think what we could have done with $1.4T the FED spent on MBS bad debt. For another comparison the US AIG (an insurance company) investment, is at around $170B.
The point is, the US Government/Treasury/FED has choosen the future of America, and that is to maintain our Bank Holding Companies. Our great nation, once a leader in technology and industry, is relagated to supporting Bankers and Insurance Companies. What does this say about America?
Mark Beck
This is the whole point!! If you are a "distressed borrower" you don't need to even be THINKING of buying a house right now, or qualifying for squat! You need to be working 3 jobs to pay off your debts, and build up your cash reserves. In a word, RENT!!
Banks should be rewarding people with great credit and cash in the bank with 2% interest rates and 30% price drops. We need to get a floor under this market--a foundation of solid, responsible owners with SKINN in the damn game again!
Who cares if you have to GIVE these houses away--at least they will be properly cared for!
Well written tyler and nice comments. Man it's really gonna hit the fan isn't it.
I want the damn gov out of the housing market.I have been stuck in this rental for 2 years awaiting this mammoth correction only to have the feds foil my plans. I guess another year in here is what I will have to do.
Don't forget that Bawney Frank will have all shorting of the market banned soon if he gets his way. Thus cutting us off at the knees. Check and mate. Hello Czar Obama.
Don't tell Kenny - He'll be pissed when he attempts to get shorty on (ii) like he's patiently waiting on.
the only cure for our mess is to get the government the fuck out of the way to let the markets implode....the sooner this is done the sooner the recovery....until then the oligarchs are breeding cancer....
Shadow inventory:
Here in the Seattle market, which by comparison is relatively “strong,” I have met in the last month, 3 people who have interesting stories to tell. The first hasn’t made a payment in 25 months and the bank hasn’t started foreclosure, the second is going on 15 months without a payment and no foreclosure proceedings and third, some folks tried to “turn in” their keys to the bank only to be told to say in the house. The banks want people living in them until the “time is better” to start foreclosure. It would appear that with all the option arms and alt-A loans waiting to reset the banks are afraid to hit the market with all the foreclosures driving down “equity” percentages and then forcing resets which consumers cannot afford.
Just my view from the Pacific Northwest.
South Lake Union has completely empty luxury condo high-rises - without .gov funds the downtown market would get ugly - keep building...recovery around the corner! Commercial real estate is musical chairs: no one new to the game and most moves are seeking lower rent within a mile.
Value of US residential real estate at bubble peak;
Mortgage debt constituted about $11 trillion
Owner equity about $14 trillion
Peak value of about $25 trillion, the current value is about $19 trillion, and the long term trend line value is about $13.5 trillion. Typical debt-to-value ratio of 80% means that just a 20% drop in house values your equity is going to zero. This is why so many households are now underwater.
House values have receded not quite halfway to their long term trend line valuation. We are still nowhere near a house price bottom. Feel sorry for those that have drank the government kool-aid and bought a house recently. These are the folks who will be the next foreclosures.
death spiral..lower housing prices, more homeowners underwater, more foreclosuers, lower housing prices. Opps lower property taxes, more state/local unemployment lower housing prices. The only answer is to hold properties off the market and let the deadbeats stay in the homes for decades.
They poop where they sleep, or sleep where they poop.
Just wait till rates tick up twice... Every swinging dick will rush to lock in and there will be a mad rush to buy anything with a front door. Banks will sell into the rush. Prices could rise after that.
and who do we propose will have the money to make such purchases? unemployment rate suggests not too many. for whoever is left, you can't get a loan unless you work for a bank or you have some major collateral. it is the lack of the latter, along with any reasonable down-payment, that got us in this mess to start with.
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Bullshit. Any sucker needing a bankster loan will jump when rates tick up if buying real estate. The prudent and patient will strike when rates are at their max, and prices are at a bottom. There's a big difference between cash buyers and loan slaves, and the vast majority of Amorica is about to learn...
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Actually the opposite - Many will have to lower prices because the purchaser's ability to make payments at the higher rates will be non-existent.
Curious about something -- maybe a realtor or bean counter out there can provide some illumination....
With all these "undocumented" non-foreclosures (i.e., bank not moving forward, "owner" still living in the house but not paying, etc.), who is paying the property taxes?
If they're not being paid, how long before the states and counties start putting pressure on the banks to pony up?
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Fed sugar and banksters will trump the local pressure. Most states will be owned by the Fed with "stimulus/bailout/taxpayer" cash that says "play ball or else". This will continue until the pain is evident. Coyote moment is now through 2012. Then reality sinks in and we suck it up and survive, or go quietly into the night.
Even in the worst of worst regimes, rural parts of Russia survived and thrived with a healthy underground economy. Study up, and learn to do something valuable with hour hands and brain. Changing paper won't do. What can you grow? What can you fix? The FIRE economy is a damned dirty lie...
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Good point - and your answer is that they are going unpaid. the taxes get paid when foreclosure occurs (i.e., the back taxes get paid) and then going forward they are a carry cost for the Real Estate Owned (REO) portfolio at the bank. Another reason for banks to not foreclose. No tax liabilities if you don't own it.
And that game can last quite a while. The locality's next remedy is to hold a "tax sale" of the property (often the fodder of "get rich in real estate" schemes for sale) which sounds good at first blush: a home sells for just the taxes due, and whatever is bid over that. However, the local tax sale often takes a year or more after missing the tax payments to schedule, and the big problem is that the mortgages remain if the taxes are paid off. So not a lot of homes with substantial mortgages get bought at tax sales. Those mortgages are in default the second you buy the home, lender forecloses after a thank you very much for paying the back taxes. Beware this scam.
I forgot about the tax sale -- yet another tool in the kit to hide the underlying toxicity and pass on the liability plus interest to the next sucker.....
Thanks for the reply!
In New Jersey, taxes come before all mortgages including a first purchase money mortgage. After holding a tax lien two years the lien holder can foreclose on the tax lien. Tax lien foreclosure extinguishes all subordinate liens including the mortgages. The mortgage holder may of course defend his interest by bidding at least the amount of the accrued tax obligation, in effect buying out the tax lien holder.
“However, the local tax sale often takes a year or more after missing the tax payments to schedule, and the big problem is that the mortgages remain if the taxes are paid off. So not a lot of homes with substantial mortgages get bought at tax sales. Those mortgages are in default the second you buy the home, lender forecloses after a thank you very much for paying the back taxes. Beware this scam.”
This is wholly incorrect Ned. When a tax sale occurs, generally after 5 years of non-payment depending upon the jurisdiction, all mortgagees are subordinant in interest to the government. i.e., the proceeds of the sale first go to pay off the delinquent taxes, and then are applied to each succesive lien which is attached to the property such as the primary mortgage, secondary, and so on. The purchaser of the tax lien absolutely does not assume liability to the prior mortgagees because he or she recieves a tax title from the government (free and clear of all liens).
This is why a primary or secondary lender will generally a bid tax sale up to the point that his or her interest is covered by the bid price – asuming of course that market value will justify that.
Anyone who uses the term "equilibrium" in the context of American housing, doesn't know what he is talking about. There never has been, is not now, and never will be a "market" in housing in the U.S.
CIBC. Interesting company.
On their recruitment page and their campus recruitment pages they don't even have a white male among the photographs used to sell their company to potential employees.
http://www.cibcwm.com/wm/careers/index.html
Diversity only goes so far it seems.
Zero Hedgers wake up, we do not live in the realism that you live in. We live in la la land. The government will manipulate anything and everything to get the numbers it wants. You can either step in the way and get killed or just step aside and see let others make money. This is the good old USA. We make up whatever we want to get our way. Remember the bombs in Iraq!
Sounds like you have been reading and charting with Bill the Brain at Calculated Risk...
I think these are all good points describing why they supply will remain high. But it does not reveal the true reason for a new crisis.
But this article does!
http://dailyreckoning.com/the-second-wave-of-the-housing-crisis/