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Refuting The Housing Recovery Falacy Courtesy Of... The Fed?

Tyler Durden's picture


With the Federal Reserve now openly endorsing the ponzi scheme nature of the US stock market, it would be expected that any releases out of the Fed or its regional offices would be strictly within the limits of preapproved propaganda. Which is why we were stunned when we read the following research piece released from the Dallas Fad, titled: "The Fallacy of a Pain-Free Path to a Healthy Housing Market" in which we read unpleasant facts that traditionally are relegated only to the dark and murky world of the blogosphere. Among these are the following pearls: "Prices, in fact, have begun to slide again
in recent weeks. In short, pulling demand forward has not produced a
sustainable stabilization in home prices, which cannot escape the
pressure exerted by oversupply
", "
About 3.6 million housing units,
representing 2.7 percent of the total housing stock, are vacant and
being held off the market....Presumably, many are among the 6 million distressed
properties that are listed as at least 60 days delinquent, in
foreclosure or foreclosed in banks’ inventories.
" (the bulk of which are still populated by squatters who pay no mortgage, yet who are not booted by the lender banks, and who instead can redirect the money to uses such as iPad purchases), and this stunner: "With nearly half of total bank assets backed by residential real estate, both homeowners on the cusp of negative equity and the banking system as a whole remain concerned amid the resumption of home price declines.....The latest price declines will undoubtedly cause more economic dislocation. As the crisis enters its fifth year, uncertainty is as prevalent as ever and continues to hinder a more robust economic recovery. Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress." This is a stunning admission: in essence the Fed itself is advocating for mark-to-market, and the ensuing bloodbath that would ensue with bank book, and market, capitalization. Will this proposal by authors Danielle DiMartino Booth and David Luttrell see more traction at the Fed or promptly disappear in someone's inbox? Our money is on the latter.

Full must read report:

The Fallacy of a Pain-Free Path to a Healthy Housing Market
by Danielle DiMartino Booth and David Luttrell

In the mid-1990s, the
public policy goal of increasing the U.S. homeownership rate collided
with a huge leap in financial innovation. Lenders shifted from
originating and holding mortgages to originating and packaging them for
sale to investors. These new financial products enabled millions of
Americans who hadn’t previously qualified to buy a home to become
owners. Housing construction boomed, reaching a postwar high—9.1
million homes were built between 2002 and 2006, a period when 5.6
million U.S. households were formed.

The resulting oversupply
of homes presents policymakers with a formidable challenge as they
struggle to craft a sustainable economic recovery. Usually a driver of
economic recoveries, the housing market is foundering as an engine of

Generations of
policymakers since the 1930s have sought to increase the homeownership
rate. By the late 1960s, it had reached 64.3 percent of households,
remaining there through the mid-1990s, in apparent equilibrium with
household formation during a period of sustained U.S. economic growth. A
fresh push to increase ownership drove the rate up 5 percentage points
to its peak in the mid-2000s. Home price gains followed the rate

Reverting to the Mean Price

As gauged by an
aggregate of housing indexes dating to 1890, real home prices rose 85
percent to their highest level in August 2006. They have since declined
33 percent, falling short of most predictions for a cumulative
correction of at least 40 percent.[1] In fact, home prices still must fall 23 percent if they are to revert to their long-term mean (Chart 1).
The Federal Reserve’s purchases of Fannie Mae and Freddie Mac
government-sponsored-entity bonds, which eased mortgage rates,
supported home prices. Other measures included mortgage modification
plans, which deferred foreclosures, and tax credits, which boosted
entry-level home sales.

Measuring the
success of these efforts is important to determining the trajectory of
the economic recovery and providing policymakers with a blueprint for
future action. New-home sales data, though extremely volatile, are
considered a leading indicator for the overall housing market. Since
expiration of the home-purchase tax credit in April, sales have fallen
40 percent to an average seasonally adjusted, annualized rate of
283,000 units. This contrasts with the three years through mid-2006
when monthly sales averaged 1.2 million on an annual basis. Before the
housing boom and bust, single-family home sales ran at half that pace.
Because current sales are at one-fifth of the 2005 peak, new-home
inventories—now at a 42-year low—still represent an 8.6-month supply. An
inventory of five to six months suggests a balanced market; home
prices tend to decline until that level is achieved.

One factor inhibiting the new-home market
is a growing supply of existing units. The 3.9 million homes listed in
October represent a 10.5-month supply. One in five mortgage holders
owes more than the home is worth, an impediment that could hinder
refinancings in the next year, when a fresh wave of adjustable-rate
mortgages is due to reset. The number of listed homes, in other words,
is at risk of growing further. This so-called shadow inventory
incorporates mortgages at high risk of default; adding these to the
total implies at least a two-year supply.[2]

mortgage-servicing industry has struggled with understaffing and
burgeoning case volumes. The average number of days past due for loans
in the foreclosure process equates to almost 16 months, up 64 percent
from the peak of the housing boom. One in six delinquent homeowners who
haven’t made a payment in two years is still not in foreclosure.[3] Mounting bottlenecks suggest the shadow inventory will grow in the near term.

Notably, not all
homeowners in arrears suffer financial hardship due to unaffordable
house payments. Those with significant negative equity in their homes
may choose to default even though they can afford to make the
payments. Such “strategic default” is inherently difficult to measure;
one study found 36 percent of mortgage defaults are strategic.[4]
Though the effect is not readily quantifiable, the growing lag between
delinquency and foreclosure provides an added inducement for this form
of default.

Mortgage Modification Limits

One set of policies
to aid home-owners in dire straits involves mortgage modifications,
though these efforts have only minimally reduced housing supplies. The
most far-reaching effort has been the Making Home Affordable Program
(previously the Home Affordable Modification Program, or HAMP), in
effect since March 2009. After only one year, cancellations—loans
dropped from the program before a permanent change was
completed—eclipsed new modifications (Chart 2). Since March, the
number of cancellations has continued to exceed new trial
modifications, which involve eligibility and documentation review, and
successful permanent modifications.


The fact that many
mortgage holders have negative equity in their homes stymies
modification efforts. In the case of HAMP, the cost of carrying a house
must be reduced to 31 percent of the owner’s pretax income. Even if
permanent modification is achieved, adding other debt payments to
arrive at a total debt-to-income ratio boosts the average participant’s
debt burden to 63.4 percent of income. In many cases, the financial
innovations of the credit boom era, enabling owners to monetize home
equity, encouraged high aggregate debt.

A study found that in a best-case outcome, 20 to 25 percent of modifications will become permanent.[5]
In 2008, one in three homeowners devoted at least a third of household
income to housing; one in eight was burdened with housing costs of 50
percent or more.[6] Failed modifications suggest that, without strong income growth, the bounds of affordability can be stretched only so far.

intervention, modest home price declines could be allowed to resume
until inventories clear. An analysis found that home prices increased
by about 5 percentage points as a result of the combined efforts to
arrest price deterioration.[7]
Absent incentive programs and as modifications reach a saturation
point, these price increases will likely be reversed in the coming
years. Prices, in fact, have begun to slide again in recent weeks. In
short, pulling demand forward has not produced a sustainable
stabilization in home prices, which cannot escape the pressure exerted
by oversupply (Chart 3).

Lingering Housing Market Issues

About 3.6 million
housing units, representing 2.7 percent of the total housing stock, are
vacant and being held off the market. These are not occasional-use
homes visited by people whose usual residence is elsewhere but units
that are vacant year-round. Presumably, many are among the 6 million
distressed properties that are listed as at least 60 days delinquent,
in foreclosure or foreclosed in banks’ inventories.

Recent revelations
of inadequately documented foreclosures and the resulting calls for a
moratorium on foreclosures—what was quickly coined
“Foreclosuregate”—threaten to further delay housing market clearing.
While home price declines may be arrested as foreclosure paperwork
issues are resolved, the buildup of distressed supply will only grow
over time. Perhaps less obviously, some lenders with the means to
underwrite new mortgages will remain skeptical about the underlying
value of the collateral.

With nearly half
of total bank assets backed by residential real estate, both homeowners
on the cusp of negative equity and the banking system as a whole
remain concerned amid the resumption of home price declines.[8]
This unease highlights the housing market’s fragility and suggests
there may be no pain-free path to the eventual righting of the market.
No perfect solution to the housing crisis exists. The latest price
declines will undoubtedly cause more economic dislocation. As the
crisis enters its fifth year, uncertainty is as prevalent as ever and
continues to hinder a more robust economic recovery. Given that time
has not proven beneficial in rendering pricing clarity, allowing the
market to clear may be the path of least distress.

the Author

Booth is a financial analyst and Luttrell is a research analyst in the
Research Department of the Federal Reserve Bank of Dallas.


  1. See Irrational Exuberance,
    2nd ed., by Robert J. Shiller, Princeton, N.J.: Princeton University
    Press, 2005 and 2009, as updated by author
  2. Authors’
    calculations using the Census Bureau’s new-home sales report, the
    National Association of Realtors’ existing-home sales release and
    Capital Economics’ July 13, 2010, U.S. Housing Market Monthly report.
  3. Data from LPS Applied Analytics.
  4. See
    “The Determinants of Attitudes Towards Strategic Default on Mortgages,”
    by Luigi Guiso, Paola Sapienza and Luigi Zingales, Economics Working
    Papers no. ECO2010/31, European University Institute, July 2010
    (previously circulated as “Moral and Social Constraints to Strategic
    Default on Mortgages,” NBER Working Paper no. 15145, National Bureau of
    Economic Research, July 2009). The number of strategic defaulters as a
    percentage of total defaulters rose to 35.6 percent in March 2010 from
    23.6 percent in March 2009.
  5. See
    “Foreclosure Pipeline to Govern Home Price Inflation: A Dialogue with
    Mortgage Servicers and Policy Officials,” Zelman & Associates, May
    18, 2010.
  6. See “The State of the Nation’s Housing 2010,” Joint Center for Housing Studies, Harvard University, June 2010.
  7. See
    “Housing Markets and the Financial Crisis of 2007–2009: Lessons for the
    Future,” by John V. Duca, John Muellbauer and Anthony Murphy, Journal of Financial Stability, vol. 6, no. 4, 2010, pp. 203–17.
  8. Real
    estate secures 58 percent of all U.S. bank loans, and real
    estate-backed assets account for 46 percent of total bank assets. See
    “U.S. Housing: How Bad For Banks?” BCA Research Daily Insights, Sept.
    27, 2010. CoreLogic reports that a 5 percent decline in home prices
    would result in an additional 2.5 million underwater borrowers. See
    “Housing: Stuck and Staying Stuck,” by Nick Timiraos and Sara Murray,, Sept. 24, 2010.

h/t Mike


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Wed, 12/22/2010 - 14:47 | 824392 gwar5
gwar5's picture

Yes... we are a Banana Republic.

Yes... we still have no bananas.

Wed, 12/22/2010 - 14:56 | 824426 Id fight Gandhi
Id fight Gandhi's picture

We will tell our great grand children od the days when man used to walk on the moon. How planes carried people in under three hours to Europe, how men produced goods in factories. It will take the next world war to rebalance things.

Wed, 12/22/2010 - 15:30 | 824537 SheepDog-One
SheepDog-One's picture

Banana republic...and we dont even have the benefit of having fuking BANANAS!!

Wed, 12/22/2010 - 18:49 | 825012 IQ 145
IQ 145's picture

 Hawaii; a united states state; (supposedly); I can see the bananas out my window. many, many bananas. I'm not sure if this is significant, tho.

Wed, 12/22/2010 - 20:52 | 825305 EvlTheCat
EvlTheCat's picture

Come on SD1, we have lots of bananas.  They are all centrally located in Washington, D.C. in a place called Congress.

one useless 'banana' is a shame, two is a law firm, and three or more is Congress.

Thu, 12/23/2010 - 00:02 | 825542 jeff montanye
jeff montanye's picture

imo all three branches (executive, legislative and judicial) are involved.  have you forgotten about our (constitutionally mandated) checks and bananas?

Wed, 12/22/2010 - 16:02 | 824616 101 years and c...
101 years and counting's picture

we may not have bananas, but we are really good at committing fraud and printing inflation and exporting it around the globe.

Wed, 12/22/2010 - 14:46 | 824394 docj
docj's picture

Benron needs a contrarian point of view that can be laughed-at and then dismissed out of hand - so he can go before The Elected and The Media say something like "Sure, we considered all available options and decided the best bet is STEADY AS SHE GOES!!"

Looks like DiMartino-Booth and Luttrell drew the short straw this month.

Wed, 12/22/2010 - 15:46 | 824578 Irwin Fletcher
Irwin Fletcher's picture

Yep, short straw successfully passed from Thomas Hoenig. DAMN THE TORPEDOES!!!

Wed, 12/22/2010 - 14:48 | 824398 bronzie
bronzie's picture

"With nearly half of total bank assets backed by residential real estate, ..."

not to mention a significant portion of the several hundred trillion dollars worth of derivatives floating around the planet right now

residential real estate underpins the whole economic system in the western world

Wed, 12/22/2010 - 15:00 | 824437 aint no fortuna...
aint no fortunate son's picture

it simply means QE3 and 4 are a lock

Wed, 12/22/2010 - 15:18 | 824501 Beatscape
Beatscape's picture

The other 40% is commercial real estate, which the banks have done a fabulous job of extend and pretend.

Wed, 12/22/2010 - 17:18 | 824796 TheGoodDoctor
TheGoodDoctor's picture

LOL. That was my thought. "How much is CRE then?" As Jim Lahey says, "There's a shit storm brewing Bubbles. A shit storm."

Wed, 12/22/2010 - 18:31 | 824975 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

GoodDoctor: You score extra credit points for using Trailer Park Boys, and yup with CRE they're  takin' the shit tornado right back to Oz.


I suppose this makes us the shit hawks.

Thu, 12/23/2010 - 00:23 | 825557 jeff montanye
jeff montanye's picture

take a good long look at that home price chart.  reversion to the mean?  can anyone doubt it will be plumbing the second (third?) standard deviation below the mean?  

scrutinize 1893 (panic of) to 1920.  nearly three decades of relative slide (we've had four years).  followed by twenty more years in the crapper culminating in "the great depression".  approaching the remaining life time of a newly minted labor market entrant.  

telling our grandchildren of men on the moon?  tell them about when people owned real estate for "investment purposes".

Wed, 12/22/2010 - 14:48 | 824400 Internet Tough Guy
Internet Tough Guy's picture

Rates are up today.

Wed, 12/22/2010 - 14:52 | 824411 Kyron95131
Kyron95131's picture

i would expect this to continue through 2011 easy... if not grow exponentially

Wed, 12/22/2010 - 14:52 | 824412 ghostfaceinvestah
ghostfaceinvestah's picture

How ironic coming from the biggest Central Planning organization in the history of mankind.

Wed, 12/22/2010 - 14:53 | 824413 Liars Poker
Liars Poker's picture

Visit , he has a very good strategy. What do you guys think?

Wed, 12/22/2010 - 14:53 | 824417 mark mchugh
mark mchugh's picture

Two things:

How can anyone discuss house prices without discussing interest rates?

And let's remember the "housing crisis" is mostly a problem for the banks, how many more people could live comfortably in your residence if necessary?

Real demand for housing is going to be slack for quite a while.

Wed, 12/22/2010 - 14:54 | 824418 Racer
Racer's picture

With the Wikileaks taskforce and now this, it really is WTF is going on with the gubbmint!

Wed, 12/22/2010 - 14:56 | 824424 bronzie
bronzie's picture

only 22 years left until the current real estate downturn bottoms according to Martin Armstong's cycle work

some factors supporting his prediction:

- Boomers downsizing into coffins and urns

- rising unemployment

- increasing duration of unemployment

- more than 8 months of for-sale inventory on MLS (anything over 8 months typically means price pressure is downward)

- millions of units of shadow for-sale inventory that will have to be cleared at some point

- clouded titles / ownership uncertainty (robo-signing, foreclosure crisis, mortgage fraud, etc)

- aftermath of real estate bubble popping - humans tend to stay away from the once-bubbly asset category for a full generation (26 years being a generation perhaps?)

stock up on popcorn - this will be a long running show ...

Wed, 12/22/2010 - 15:31 | 824543 Logans_Run
Logans_Run's picture

...and remember to buy the fucking dip! Sarc off

Thu, 12/23/2010 - 00:31 | 825562 jeff montanye
jeff montanye's picture

again, look at the home price chart 1893 to 1942.  instructive.  

Wed, 12/22/2010 - 14:55 | 824427 Cdad
Cdad's picture

You know, just how bad the US housing market is IS something I DO know about.  So I don't need any convincing that this mess is going to get A LOT MESSIER as we bravely go forward into the wildest dreams of J. Hatzius's sense of 2011.  That would be a great big duh....although I doubt J. Hatzius will feel the TRUTH of things in his bonus check this year, anyway.

However, when I read:

Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress."

I nearly came out from under my big pile of coats in the closet...[I said nearly]... on that WOWZER...considering those words belong to a Fed official. 

As for all those sweet charts about the total bumble-u-no-what in the US housing market, those charts will only prove one thing...that folk over at the Blow Horn [CNBC] will NOT BE TALKING ABOUT US HOUSING any time soon. 

Wed, 12/22/2010 - 16:07 | 824626 One Ton Lady
One Ton Lady's picture

Look everybody. Its fuckin Cdad, the original thread cleaner. Look out and don't say anything he doesn't like or else.

Wed, 12/22/2010 - 17:03 | 824755 velobabe
velobabe's picture

I like fcking Cdad, he is german, take photographs of miss..ey in skirts, blowing up from the street man hole covers, and lives in the clothes closet. i hide in my clothes closet a lot 2.

Wed, 12/22/2010 - 14:57 | 824433 dearth vader
dearth vader's picture

Danielle DiMartino Booth, not someone to boot easily...

Thu, 12/23/2010 - 00:43 | 825576 jeff montanye
jeff montanye's picture

thank you (!) for that link.  hubba hubba (for her mind).  brooksley born, bethany mclean, meredith whitney, dimartino booth.  impressive and ongoing, apparently.

Wed, 12/22/2010 - 14:59 | 824436 Id fight Gandhi
Id fight Gandhi's picture

When this country get worse, where will you move?

What country has most prospects for a better life?

Wed, 12/22/2010 - 15:08 | 824471 Jason T
Jason T's picture

Where liberty dwells will be my country.  


I can't think of any :/

Wed, 12/22/2010 - 19:03 | 825055 Budd Fox
Budd Fox's picture

New Zealand

Wed, 12/22/2010 - 19:30 | 825135 OddFieldIsStrong
OddFieldIsStrong's picture

Seriously we don't want any more of you jumping rats. Go to Australia. It's better cultural fit for you people.

Wed, 12/22/2010 - 15:00 | 824442 jkruffin
jkruffin's picture

This whole mess could have been taken care of 2 yrs ago, and we would have already been in a major recovery, if Obama and his cronies would have just listened to me, and yes, I wrote Senators, Obama, and the works about it; repeatedly.

I said the FED should have bought out all mortgages (which was @$11.3 Trillion at the time), and consider them all paid, pay the banks their crooked money, and people could come back in and tap up to 50% of the new equity to pay off cc debt and other high interest loans.  The stipulation was it had to be primary residence and living in it for 1 yr minimum to do it.  The FED and Treasury together are already working on $9 Trillion wasted and counting in 2yrs time, and this mess is far from over, and in the initial stages of a major collapse again.  I guess Benny Boy and Timmah aren't as smart as they want people to think they are.  People could have afforded a higher tax rate if done the way I suggested, yet now we just added more debt by extending tax cuts and more unemployment.  Go figure.  This death spiral will continue too. The FED is trapped. We could have already been back on our way to a balanced budget by now.

Wed, 12/22/2010 - 15:11 | 824482 Missiondweller
Missiondweller's picture

I think Karl Marx had a similar plan.

Wed, 12/22/2010 - 15:19 | 824508 Cdad
Cdad's picture

Well said Missiondweller. 

Wed, 12/22/2010 - 15:13 | 824485 CD
CD's picture

See, there you go assuming that solving the problem was the goal of the exercise in the first place...

Wed, 12/22/2010 - 15:26 | 824531 jkruffin
jkruffin's picture

Obviously, I have to agree with your statement!

Wed, 12/22/2010 - 15:15 | 824495 Deep
Deep's picture

What about all the people who had paid off their mortgages? And many other things i can't even think off right now. 

I like your posts jkruffin, but this one i dont i agree with.


Wed, 12/22/2010 - 15:25 | 824527 jkruffin
jkruffin's picture

This was just a short of what I had suggested, just to touch on the bulk of the mortgage problem, and there were suggestions for those who rent and had paid off mortgages too, so they weren't seen, or feeling, as the ones "paying" for others.  It was pretty much a lump sum check.  The total of everything was about $13 Trillion for what I had figured up based on the taxpayer count then and the number of mortgages.

Even when I wrote it though, I knew there would always be tweaks needed, but it was a great foundation to get started to a boom back in the U.S.  However, the bankers obviously didn't approve of parting with their quaff. Our political leaders have been on vacation for about 8 years now as well, so I didn't expect to get far with them either.

Wed, 12/22/2010 - 15:02 | 824444 Lucius Corneliu...
Lucius Cornelius Sulla's picture

Off topic but I would like to know why the heck CHASE is advertising on this website! 

Wed, 12/22/2010 - 15:06 | 824461 CD
CD's picture

Contextual advertising placement (finance/banking topics) + attractive (self-reported) demographic of middle age/older, affluent, educated male readership --> prime targets for "premium" Chase credit cards, luxury cars [Caddy, Beamer]. Make sure to click often, and check out the "fantastic deals" they are offering - esp. JPM. I try to cycle through all of them at least a few times a day...

Wed, 12/22/2010 - 17:08 | 824772 velobabe
velobabe's picture

attractive (self-reported) demographic of middle age/older, affluent, educated male readership -->

<--------- i knew why zerohedge had me

@ on a long enough timeline, the survival rate for everyone drops to Ø

Wed, 12/22/2010 - 15:07 | 824465 wisefool
wisefool's picture

I think it has to do with the words on the page and the way web advertiser frameworks work. When we discuss a company their adds show up here. I just wish the fed would join the advertising pool. Lemme try this.

"Federal Reserve notes. Dropped out of helicopters at your house! click here! You don't have to be a primary dealer, or have an MBA or a PhD in economics. Mouse over for more details"

Wed, 12/22/2010 - 17:42 | 824860 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I love the irony of Tyler and crew getting advertising $$$ from them :)

Wed, 12/22/2010 - 15:07 | 824466 janchup
janchup's picture

The author of the piece has been fired for dabbling in reality.

Wed, 12/22/2010 - 17:48 | 824873 Rainman
Rainman's picture

Or maybe the author finally got the memo that 1 in 3 California mortgages are underwater. Rainman don't mean rainstorm either.


Wed, 12/22/2010 - 15:10 | 824474 CD
CD's picture

OT, but a fellow reader showed me this crew, and I feel obliged to share the wealth:

Thievery Corporation

The song most fitting here might be 33 degrees:

I'm the president of the shadow government
The grand governor of the federal reserve
Public enemy of the society
The one you cannot see the thirty three degree
Before you call the shot but now it's our turn
Blow up the system now and tables have turned
Your hidden knowledge you thought I'd never learn
I strike a match and make the whole place burn
I'm the real WMD
I'm your number one public enemy

Wed, 12/22/2010 - 17:10 | 824779 velobabe
velobabe's picture

i was just listening to this song this morning. on that same album, a lot of relevant lyrics, applied to this mess. they rock, HARD.

Wed, 12/22/2010 - 15:09 | 824475 pleseus
pleseus's picture

The housing bust of 2008 will be the housing bust of 2011 via rising interest rates all because of QE2.

Wed, 12/22/2010 - 15:12 | 824481 gkm
gkm's picture

Of course the Fed will come out with reports to justify a continued loose monetary position.  What would you expect?  

As for the desire to push the market lower - have you never heard of bond holders pushing a company into bankruptcy so that they can take out the remaining equity and own the company outright???  Now imagine you have unlimited capital behind you and you are a bond holder i.e. mortgage holder for a bunch of homes.  Think hard now and try not to break a blood vessel about what you would do.  

Wed, 12/22/2010 - 15:14 | 824492 Missiondweller
Missiondweller's picture

"This is a stunning admission: in essence the Fed itself is advocating for mark-to-market"

And more interestingly, calling for a free market once again.


I wish someone would combine the Schiller housing index with Shadow Stat's inflation rate to calculate a real inflation adjusted housing index.

Wed, 12/22/2010 - 15:17 | 824499 hambone
hambone's picture

WTF is this report???  Seriously?  Are there some warring factions within the Fed?  Stark, honest, realistic information?  Why now?  Is somebody trying to feed a coming fight between R Paul and B Bernank? 

This report is actually astounding.  How did it get out and why?  None of this info is new...just the release and admission are!!!

Wed, 12/22/2010 - 15:33 | 824550 SheepDog-One
SheepDog-One's picture

Could very well be as you say.

Wed, 12/22/2010 - 15:45 | 824575 dearth vader
dearth vader's picture

And who, at the Dallas Fed, did hire Danielle DiMartino Booth? She's a girl with a history.

Wed, 12/22/2010 - 15:23 | 824520 Beatscape
Beatscape's picture

The conventional wisdom is that we are at the bottom of the cycle and in the process of turning up--presumably to pre-housing crash levels of housing starts and sales. I've seen analytical pieces that advise buying the home builders based on this assumption--that we will return to normal levels of housing starts within 12-16 months.

Therein lies the issue--the markets are assuming a normal recovery.  We may not have a dramatic double dip in housing, but I'm 90% certain that we are NOT going to have a normal recovery within 16 months.

Wed, 12/22/2010 - 15:30 | 824541 Missiondweller
Missiondweller's picture

Too much inventory both current and shadow inventory along with bad demographics (baby boomers).

Wed, 12/22/2010 - 15:39 | 824561 SheepDog-One
SheepDog-One's picture

Everything theyve all said so far has been wrong. $8,000 home buyer credit, total flop, now theyre trying to say the recovery is assured and we're right back to R/E bubble mania within 12 months? Total insane delusion.

Wed, 12/22/2010 - 17:14 | 824787 velobabe
velobabe's picture

Cash 4 Clunkers, was a debacle, just about in every aspect imaginable. these people are just fucking out of control with all their stupid incentives. who buys into this crap, any way.

Wed, 12/22/2010 - 17:22 | 824803 TheGoodDoctor
TheGoodDoctor's picture

Maybe we can get a $100k home buyer credit after more inventory and deflation in prices. /rollseyes

Wed, 12/22/2010 - 15:36 | 824553 SheepDog-One
SheepDog-One's picture

What, no snappy commentary from HarryWanger or his other 5 supporting cast ZH I.D.s' yet?

Wed, 12/22/2010 - 15:36 | 824556 SheepDog-One
SheepDog-One's picture

Im looking into the demolition and salvage business, I think it will be the best business over the next couple of years and I want in early.

Wed, 12/22/2010 - 15:45 | 824560 Village Idiot
Village Idiot's picture

Please excuse the OT.

trav777 -

replied to your "define hate" over at -

Wed, 12/22/2010 - 15:47 | 824573 CrashisOptimistic
CrashisOptimistic's picture

3.6 million vacant houses?  $5,000 demolition per house.

$18 billion and they are gone.

So are the banks that own them.




Wed, 12/22/2010 - 15:48 | 824581 curbyourrisk
curbyourrisk's picture

20 years bitches!!!!  Thats how long it will take to work things through.

Wed, 12/22/2010 - 15:49 | 824582 Beatscape
Beatscape's picture

No doc loans are never coming back in our lifetimes.  And, as the long end of the curve keeps rising, this is not good for a robust recovery.  The markets cannot deny this forever.

I think Mr. Market, spurred on by all the follow-the-trend HFT systems, has made the wrong call assuming a robust recovery.  The housing market is going to scrape along at these low levels.

One thought for the bears... just think if the Republicans get in power and decide to clean-up and pull the plug on Fannie and Freddie.  This is a distinct possibility and is an elephant-in-the-room issue.  The government can't keep funding bad RE loans forever.  Maybe Ron Paul is the catalyst that will pull back the curtain on the "wizards" at the Fed.


Wed, 12/22/2010 - 15:55 | 824598 spongeBOB
spongeBOB's picture

The only people I know of that are willing (and able) to buy a home nowadays are first-time buyers or buyer who currently rent and don't have to sell thier current home. I am one of the laters and eventhough I have been pre-approved for a $500K loan I cannot justify the purchase. Selling my current house in this market is out of the question. I lost the 30% equity I had built and  will have to come to the closing with cash at the current going prices. We do need a bigger home because our family has grown but we just have to bite the bullet and stay put for a while until things either get better or do what everybody else is doing, stategically default.

Wed, 12/22/2010 - 17:16 | 824791 velobabe
velobabe's picture

it is what it is. good for you, to listen what the truth is in your life right now. downsizing is the new new upsizing.

Wed, 12/22/2010 - 17:25 | 824811 TheGoodDoctor
TheGoodDoctor's picture

Yup. Get me a job and maybe I can buy too.

Wed, 12/22/2010 - 18:19 | 824942 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I wanted more space in 2005 and stayed clear of the housing market even though I had more than 30% equity.  Although it might have been nice to trade up from our 1600 square foot rambler, we got along just fine.  Besides, staying put gave us financial peace of mind.

Wed, 12/22/2010 - 15:57 | 824606 bugfixx
bugfixx's picture



The article's title should be "Refudiating the Housing Recovery Fallacy Courtesy of... The Fed?"

We need better quality control around here.

Wed, 12/22/2010 - 16:23 | 824669 myshadow
myshadow's picture

At least spell fallacy correctly if you use 'words' from a grifter's thesaurus.

Wed, 12/22/2010 - 17:19 | 824794 willien1derland
willien1derland's picture

Nice --> +100 --> What Would Noah Webster Do?

Wed, 12/22/2010 - 16:13 | 824642 Bruno the Bear
Bruno the Bear's picture

Cramers take LOL:


The just-plain-embarrassing coverage of the housing industry continues. This morning's existing-home sales trend, which resumed its upward trend with pricing stable, is already being portrayed as a disappointment. The press, to steal a quote from my friend and adviser Matt Horween, is dumb as rocks. From the point of view of someone who has been glued to these numbers, calling them a disappointment is just a plain lie. Every month these numbers come out, and every month we then get projections that it is the last good month and that pricing trends are about to get hammered. Then the numbers come out, and they are not awful, they are better, and the pricing is stable, and then the numbers are quickly pronounced bad, and the forecast is that they are going to get worse. This is nonsense, something that the surging housing index (HGX) tells you is just a plain wrong and biased view. Here's the deal: If home prices were like stocks, they would be pretty much unchanged year over year. Unchanged! Do you believe that if you read the coverage? Sales are going up, not down. They are supposed to be going down right now, this month, if you look at last month's coverage. There is no accountability whatsoever on the reportage of housing. Nothing. Housing is fine. Mortgage money remains hard to come by as manifested by a huge percentage of cash purchases. A lot of homes are being taken off the market by the foreclosure stalling. But in the end, this is a "better than expected from last month" number. That's all that matters to me. It is why the homebuilders are up, and it is a part of why the homebuilders keep going higher. The fools who keep saying that housing is worse and getting much worse need to explain themselves. But they won't. Because I am the only one calling them out, and that's simply not enough to make them question their views and their biases, which, amazingly, after a year of stable pricing, refuse to change. What an extraordinary deviation from the truth. Outrageous, wrong and unquestioned. I'm from the print world. I have seen people get fired for bias and inaccuracy. I guess those days are now long gone. Too bad. It was nice to know that the truth had no deadline. I guess that's just plain over.

Wed, 12/22/2010 - 16:19 | 824655 wisefool
wisefool's picture

translation: "They have NO Idea! They have NO Idea! No Idea! ..... Buy AIG!"

Wed, 12/22/2010 - 16:48 | 824719 cosmictrainwreck
cosmictrainwreck's picture

dude...I'm in....I'm all in ...... it's a sure thing, right?

Wed, 12/22/2010 - 17:18 | 824793 velobabe
velobabe's picture

.....Buy the Dip†

Wed, 12/22/2010 - 17:16 | 824788 willien1derland
willien1derland's picture

Cramer NEVER lets FACTS get in the way of his OPINION - What Cramer should do is send Ben Bernacke some chocolates & flowers as the Fed is the SOLE reason for the US equity markets rally & here is the litmus test - if Brian Sacks said NO MORE POMO $$$$ - the market would drop 1500 Dow Points on the spot....Great Post Bruno! 

Wed, 12/22/2010 - 22:46 | 825449 eatthebanksters
eatthebanksters's picture

I'm sorry, the numbers you are reading are not giving a true indication of where the market is going.  Sales have slowed down, inventory is up, shadow inventory is huge and growing and defaults are rising prices continue their downward movements defaults will increase at a greater pace...quite simply there are many more people who will strategically default if they have negative equity on a loan which was originally 50% of the homes value vs. 80%.  You won't see this in any studies cause the dumb fuckers doing the studies arr quants and really don't understand the dynamics of the market.  Couple all of this with rising interest rates and it spells touble.  If you're such a believer that the market has hit bottom, go buy real estate.  I worl in commercial and invest in residential (multi), their are a few strong spots but over all its getting way worse.

Wed, 12/22/2010 - 16:42 | 824709 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Yes Virginia, Rome is burning.

Wed, 12/22/2010 - 16:52 | 824734 markar
markar's picture

"- Boomers downsizing into coffins and urns"


LMAO--and I'm a boomer

Wed, 12/22/2010 - 20:11 | 825226 bronzie
bronzie's picture

"Boomer downsizing into coffins and urns"

I got tired of the housing Pollyannas saying that Boomer downsizing was a wash because the boomers would sell one housing unit and then buy another

reality tells a different tale:

- some boomers will move in with family

- some will move into assisted-living or communal living situations

- some will buy and RV

to think that every Boomer is going to sell his house and buy a condo is just silly

and could somebody explain something to me - the Boomers are counting on the equity in their homes to retire on - how exactly are they supposed to tap this equity? - reverse mortgage?

it's easier to say "coffins and urns" because, by the time the real estate market bottoms, that is where most of today's boomers will be

Wed, 12/22/2010 - 17:10 | 824774 willien1derland
willien1derland's picture

Ok FIRSTLY, HOW can this be CREDIBLE RESEARCH??? They DO NOT HAVE Ph.Ds? I mean...really? I thought that the only credible research from the Fed MUST be published by Ph.Ds? Secondly - I am certain Zandi from Moodies ANALytics will write some crap that depicts US Housing on the upswing - the crisis may have started in Real Estate, however, as any ZH reader/participant KNOWS Bennie & the Feds have parlayed that fiasco into a full blown cancer - the problems is, despite many 'Doctors' providing the applicable diagnosis - Dr. Bennie has the morphine delivery system in overdrive - I wonder what infinite debt looks like anyway? - Actually, read an article from CNBC-->Put that Pizza on My Student Loan ( - unfortunately this is a tale that WILL end badly...

Wed, 12/22/2010 - 17:13 | 824783 the grateful un...
the grateful unemployed's picture

this being a service economy, to increase the value of something, it must cost less to operate the thing, than the thing costs. In a full out service economy the thing costs nothing,and you pay operating costs only. At the maximum extreme (like cell phones) the thing is free, and then you pay the subscription cost. You can lease a car for $200 a month, can you drive a car for $200 a month? not if you drive much more than 1K miles a month. A house ain't no different, if there is value greater than what that house costs to operate, the system will extract that value out of the market, (deflationary forces, and the need to turn the housing assets into something that stimulates the economy, ergo everyone who understands the problem wants the real cost of housing to be zero, except of course for debt servicing, and maintenance) in a ratio corresponding to 70/30 most likely. Just rough back of the napkin figures, still, in all out deflationary mode, the cost to service a loan at half the current median value, 150K is 7.5K? per year? Then you have the other costs, this is why rents are going up. Pay attention to that.

Remember Geo Bush and home ownership society. That guy never told the truth. its going to take everything you have just to maintain or rent a home, and the bottom in housing asset values will run inversely to the cost of servicing debt and maintaining the asset.  will correspond to the number which is best for our economy.

Wed, 12/22/2010 - 19:41 | 825159 Lucius Corneliu...
Lucius Cornelius Sulla's picture

When cap rates hit about 10% in prime rental locations, you can bet that a bottom is in.  They are about 5 or 6% where I live.  The crazy thing is that, at peak bubble, they were 3 to 4 ... pure speculation.

Wed, 12/22/2010 - 23:03 | 825467 eatthebanksters
eatthebanksters's picture

Yuo can buy 12's plus in Cleveland and Detroit all day long, but I don't think the market is close to hitting bottom in those markets.  With the exception of core high quality assets and large newr high quality multires properties, cap rates are up and all over the board.  New York and San Fran still are a couple of points below most midwest markets.  It's all case by case, some areas are marginally better than others, but it's still bad out there.  Remember Cap rates are cash yield only based on risk, they go down on the expectation of appreciation...

Wed, 12/22/2010 - 18:00 | 824915 DavosSherman
DavosSherman's picture



Wed, 12/22/2010 - 18:53 | 825026 jomama
jomama's picture

if a jubilee is coming, can i take out a mortgage right now so when all is forgiven en masse at least i have something to show for it?

Wed, 12/22/2010 - 21:46 | 825372 honestann
honestann's picture

Consider the following perfectly practical "housing encouragement program" that could exist absent the federal reserve predators.

#1:  buyers must pay 25% ~ 33% down payment.

#2:  treasury loans the 75% ~ 67% to the buyer at 0%.

It costs zero for the treasury to extend these loans, since they simply create the "money" they loan out of thin air, just like the predatory federal reserve does.

The treasury never suffers a loss, due to the 25% ~ 33% down payment requirement (the buyers take any losses).

When the loan is paid back, the "money" is destroyed, thus the total outstanding money supply is not increased by this policy.

The cost of owning a home is reduced by 66%.

How's that?

Given average historical 30-year mortgage rates, a home purchaser pays back 300% as much as he borrowed.  100% is principle and 200% is interest.  Therefore, at 0% interest rate, the total amount paid to buy the home is 33%.

The 66% that is NOT wasted in interest payments to the FederalReserve and its owner-cronie banks is available to the home owner for other purchases; home improvement, education, vacations, investments, healthier food, health care, everthing else.

The economy positively booms, because the 66% of spending that was formerly lost to interest payments, is available for other purchases.  This creates boatloads of productive jobs, which further boosts the economy.

Oh, and since you're only paying 1/4 as much (given your 25% down payment and lack of interest payments), your formerly 30 years of mortgage payments becomes 8 years.  In 8 years, your home is totally paid off.


I do not advocate the above, because I do not advocate government being involved in the economy in any way whatsoever.  However, I note this one simple example to show how TOTALLY the modern world economy is 100% entirely configured for the benefit of the international gangster banksters who are the owners of the FederalReserve.  This one trivially simple change would make life better for 99.999% of humanity.  The other 0.001% are predators, and they can either be executed as they deserve, or be required to perform productive work or starve to death.

Wed, 12/22/2010 - 22:40 | 825444 eatthebanksters
eatthebanksters's picture

One must always remember that politicians rarely make bold moves. Politicians are always a small step behind the winds of change, only moving in the appropriate direction when it serves their purposes.  Until now it has been politically unacceptable to discuss the real state of our economy (as well as the world).  While there was a smidgen of a chance that our guvmnt thought they could hold off the damage of their own creation, not a word was ever whispered by the pols, the Fed, Timmeh,the Banksters, Obummer and the rest of the liars that run our country. The fact that the soft breezes are whispering the hard facts says to me that the powers have decided they can no longer stop the cyclone...they are letting the first rains and breezes utter warnings.  Whalen, Tavakali and others are being heard over the MSM.  Congress knows their warnings cannot be ignored; to do so would be to appear a total loser when the difficulties start to unfold at a faster pace...a sure way to guarantee retirement at the next election.  Governor Christie has spoken the hard words of truth, the third rail, as he calls it, which was previously unacceptable to address as a politician is now up front and center.  Meredith Whitney is exposing the Muni fiasco.  Banksters are facing the scrutiny of armies of lawyers both representing private sector plaintiffs and government criminal inquiries.  (I doubt if BAC will last more than a year even without Wikileaks).  In the end, smart people, like the people who produce, read and perpetuate Zero Hedge, and other blogs, are winning the battle of truth over the propaganda spewed by our simple minded guvmnt.  The people who aren't smart enough to understand what is really happening are smart enough to know the difference between right and wrong...and that is where the battle is being waged and where it is being won by folks like Tyler Durden.

Keep up the great work people! are making the MSM less relevent with each passing day, you are forcing the liars to admit the truth (as is evident here).  The change will not happen suddenly...but it is happening.  Perhaps the bad guys won't be lined up against the wall and shot, like they deserve, but at least the change that we need to lift up those who have been stepped on is starting to become a real possibility.  Merry Christmas and Happy Holidays everybody!  Keep up the good work!

Wed, 12/22/2010 - 22:48 | 825452 DonutBoy
DonutBoy's picture

+1.  I think many in the Fed, the World Bank, the IMF are genuinely interested in getting back to reality with as little damage to innocents as possible.  While they thought extend and pretend had a chance they went along.  Now they know it has no chance, and they the truth is leaking out.  A Fed governor saying we're monetizing the debt.  A world bank president saying gold needs to be considered in the gold standard.  Now the Fed saying housing prices have to drop to a market clearing level - even as they hold MBS's that will get slaughtered.

Not possible without Zero Hedge.

Thu, 12/23/2010 - 02:17 | 825671 onlooker
onlooker's picture

Am I wrong here? I thought the Dallas guys were kinda telling the truth. Is that not better than what we have heard. Dont we suposta say--damn straight Dallas?

Thu, 12/23/2010 - 02:34 | 825684 Frederic Bastiat
Frederic Bastiat's picture

The real question is:  Where was chart 1 five years ago?

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