Zombie Housing Market Chronicles - Fed Fails Again To Stimulate A Housing Recovery

Tyler Durden's picture

While today the association of real estate advertising agents known as the NAR will tell us that the home market is improving - an economic observation which we will completely ignore as any data out of the NAR is now proven to be manipulated and fraudulent, a far better indication of the ongoing implosion in the housing market, and more importantly - the sheer powerlessness of the Fed to do anything about it - came out of the latest weekly Mortgage Brokers Association, which showed that refi applications were down 4.8% W/W, while purchases slid 2.9%, after collapsing 8.4% in the past week. This has taken the Purchase Application index back to the September lows, which just happens to be the lowest print in 16 years! And while this in itself would be ok if not exactly good, it took place at a time when the 30 year mortgage rate was down to all time record lows! In other words, Bernanke's sole prescription to fix the broken housing market diagnosis - low mortgage rates, has now been proven to be a complete disaster, even as Obama does everything in his power to get debt repudiation for deadbeats (at the expense of everyone else of course) and fails. So: what's the next plan?

One would think record low mortgage rates would be good for the housing market: one would be dead wrong.

Is this is what a housing recovery looks like?

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knukles's picture

There's always a first time.

Clueless Economist's picture

Methinks we need a massive new stimulus package to pay off all the mortgages of those who are "under water" or have stopped paying on their mortgages.

This is fair, because those that can afford to pay their mortgage are doing so on a timely basis and need no such help.

This would solve the housing crisis right away.

"The only solution to the debt crisis, is more debt"

Paul Krugman

Economist/Nobel Winner/Professor/NY Times blogger/Ivy Leaguer/Genius/All-Around Douchebag

Everybodys All American's picture

You are probably not far from reality. Bernanke has been just begging to do his LSAP's of the mortgage market. I mean why not? We all know he is such a knowledgable man who studied the great depression. We are so f'd. Carry on.

trav7777's picture

How about lower the prices to affordability? 

Max Hunter's picture

Price will reflect wages and labor market. So, the prices still need to come down.. And when interest rates finally do go up, you will see a direct (inverse) correlation with the two.. prices and interest rates... People are payment sensitive..

Leopold B. Scotch's picture

Housing is desperately seeking a clearing price.

French Frog's picture

The odds of getting an above expectation housing number in 5 minutes are very high (but aren't they always these days lol)

Leopold B. Scotch's picture

The dispshit policy makers don't want to let prices drop... Idiots.

All this talk of lowest ever mortgage rates.  WTF?!?  It's the monthly payment that drives everything, and if you can't afford the MP at current rates, it's the PRICE, STUPID.

This is the same stupidity that extended the Great Depression.   Whereas the depression of 1921 cleared entirely in 18 mos (much like all prior "depressions"), the GREAT was GREAT only because Hoover (FDR-Lite) and FDR started price fixing everything at prices that would not clear.  These morons had farmers tilling crops, dumping milk, slaughtering pigs, etc, all to "help the farmer by keeping prices stable"... never mind, the average Joe couldn't afford a freaking apple with prices kept artificially high.

Then there were the new labor rules. And then the Supreme Court was going to throw it all out as unconstitutional.  And then FDR was going to illegally disband the Supreme Court to stack it with Fabian Socialist Flunkies, so the Court panicked and decided on the lesser of two evils: Socialism vs. dictatorship.

Dingleberry's picture

Exactly...there is no problem that price cannot fix.  But that is capitalism....and so out of vogue now, and apparently for years to come. 

Don Birnam's picture

Prospective buyers, sellers, and investors eagerly await the next singularly sanguine pronouncement from everyone's favorite spinner, Lawrence Yun. Pull up a chair and watch him gyrate uncontrollably. You'll enjoy the show.


Shizzmoney's picture

Price will reflect wages and labor market. So, the prices still need to come down..

BOOM! hit the nail on the head.

What these corporate assholes who expect us to be happy with our (for most part) shitty wages and high taxes don't understand is the fact that consumer WILL ADAPT to the conditions in order to keep their lives afloat.  It's fiscal evolution.

If that means cutting out the cable bill, not going out to restaurants, and paying down debt - we will do that.  I've done that, and am going to be in the life black for the first time since I was 18 at the end of the year.  I'm only part of 10% of my age bracket to be like this.

Housing is becoming more unattainable, especially to the younger generation, as the crushing debt of our financial serfdom continues to contract.  It's simply fiscal evolution, and it effects the entire econ-eco-sytem around us, because without commerce, there is no jobs, and without jobs, there isn't any wealth amongst potential new home owners to make a down payment on a loan, never mind the entire house.

You also have a confidence issue in banks.  Do they actually have the money they are lending you?  Are they going to suddenly change the terms of my mortgage whenever a toaster oven pops up?  Do I really want to go and give these assholes more leverage to own my ass if *shit hapens* and my wealth/job evaporates with the market?

18-30 year olds have almost NO cash after paying rent, student loans, cell phone bill, food, gas, and for some, the occasional kid or two.  Out of my peers in the Boston area, I only know of *one* who has bought a house.  This is out of 150+ people.   And BTW, that person who did buy a house (Optomitrist), had to go to Maryland to afford it.

Which leads to another problem: when people want to buy a home, they prefer to do it in a place near their family and friends.  hey really don't want to move to the AZ or MI suburbs, where homes are cheap.  The reason?  No jobs.  All of the jobs that pay average-on-up, are in the high cost areas like NY/CA/MA/IL.  This drives home prices up, and since the potential young buyer is in student loan debt (and cc debt), and the Babu Boomer is also in cc debt.....well, lets just say its looking really bullish for rich people to buy that 2nd of 3rd home.  

This is what happens when you have a bunch of rich people who also happen to be religiously insane.  Evolution is kind of an important concept to understand markets, as it is the barometer on how consumers (our society's tax base) works.

donsluck's picture

It's even simpler. People stop paying their mortgage, and continue watching cable, going out, etc. Once the effects of the robo-signing settlement engage, those same people will actually lose their homes and be forced to start paying rent. There goes cable, going out, etc. The Settlement is the black swan.

Dr. Richard Head's picture

While Fannie and Freddie were implemented and given a rather large line-of-credit to "make housing affordable", those same entities, along with the Fed, are being utilized to keep housing prices inflated.  Welcome to the surreal world of government created problems and the unintended consequences of the government created "solutions".

Kickaha's picture

Here is what is happening overall.  It may not be happening to you.  It may not be happening in your part of the country (yet).  Not every snowflake down the hillside joins the avalanche at the same time.

Some people were overextended financially.  Not enough savings.  Too much debt.  Some of this subset got sick.  In some couples, one of the spouses got laid off.  These were the first to fall off the financial cliff.  They had little choice but to let their homes fall into foreclosure.  They had paid 20% down, but the collapse of the real estate market had put them underwater on their mortgages.  Others maintained their jobs and their health.  But there is still time for adversity to strike them, also.  It happens every day.

Other people had planned for some adversity.  They had savings.  They had an IRA or a 401(k).  Then one of the spouses lost their job.  Maybe they found a new one, but at one-third the previous pay.  The other spouse hasn't had a raise in ten years.  Instead, co-pays for health coverage increased.  The price of gas increased.  The price of food increased.  No amount of household budget cost-cutting solved the problem, but spending the IRA and taking out loans against the 401(k) filled the gap for awhile.  Then they had to let their houses go, too.  This is an ongoing process.  More people fall into this group every day.  It is one reason that their have been such large outflows from capital markets over the past several years, and why the rate of foreclosures remains persistently high.

Sometimes people got in trouble just by following the conventional wisdom in America as to how to live your life.  Young families put 20% down on a home big enough to house their growing families.  They did so with optimism and a belief that the future would bring raises and better job opportunities.  Instead, the future brought wage cut-backs, and they slowly slipped into financial oblivion, and they had to let the house go.

Other folks with skills in demand, but not in their immediate locale, just walk away our of necessity.  They have to relocate to work and get a paycheck.  The bank is left with another empty home.

Lots of other folks, rather than renting or buying, move back in with Mom and Dad.  I wonder how many multi-family households have popped up since 2005?  I suspect it is a surprising large number, especially if you include those 20 and 30-year olds who can't afford to move out.

Sure, a lot a doofuses got caught flipping homes for what they thought would be perpetual capital gains.  Others jumped at the chance of owning a home when they probably knew in the back of their minds that the payments would be more than they could handle.  Stupid construction companies, rather than lose their skilled tradesmen, built a lot of spec homes in the false hope they might actually sell them to somebody.  Those homes are still vacant and rotting.

This is only the beginning of the avalanche.

Coming soon, to your neighborhood.  Or maybe the avalance has already run through your neck of the woods.

Since nobody who needs a mortgage to buy a home can qualify for one, "affordable" means prices so low that a typical worker can pay cash for it.  But I don't think we will get that far, except for inside the city limits of slummy large cities.   But you can't have a job living in such places, since your "neighbors" will steal you blind while you are at work.

Actually, if pushed a little to predict the future, I think that eventually some large new hedge fund will figure out a way to buy millions of residential homes and offer them as rentals.  The management costs for looking after the rentals seems to have discouraged such projects so far, but as the cost of acquiring the homes diminishes, some feudal lords will figure it is worth the risk.  I hear that the major mortgage banks are trying to figure out how to bundle thousands of foreclosed homes in a single offering, thereby lowering their transactional costs.  They appear to have finally figured out that withholding homes from the market, although it might artificially buoy prices, results in an inventory of rotted and unsaleable homes.

Look for these transactions to involve the bundling and sale of all of the homes in one geographical location to one investor, so that the investor can subsequently hold a virtual monopoly on rental home pricing.

There are lots of special interests fighting to create the illusion that home prices are stable or even rising.   Cities, counties, and school districts all over the country would collapse overnight if current property values were honestly assessed.  The realtors and builders cannot afford to let you understand that only an imbecile would purchase a home that is presently occupied by the owners, or buy a new home, as long as perfectly fine foreclosed homes are on the market for 50% less in price.  Politicians don't want to own the problem, and they have decided that the best political strategy is to deny its depth and its extent, and trumpet "loan modification" programs.

The loan modification programs hyped by the policitions are carefully designed to benefit nobody but the lenders.  They are used to syphon off what little wealth the homeowner possesses on the pretext of catching up on the mortgage arrears under circumstances where the homeowner's assets whoud be exempt in a Chapter 7 bankruptcy filing.  They dangle the hope of remaining in the home in exchange for the voluntary delivery of wealth they could not touch in a bankruptcy.  The lenders get a government loan guarantee in the process, and they know they are squeezing the homeowner so severely on their new budget that default a year or so down the road is inevitable, anyway.  Then they collect the full value of the loan from the taxpayers.

But, not to worry.  When Foxconn opens up its American subsidiaries, folks can reside in dormitories next to the factory, and view it as an upgrade from a tent in the wintertime woods.

In order for all of this to get fixed, I think it is unassailable logic to conclude that homes must become affordable for the average American worker.  But the wages of the typical American worker have to become "affordable" to their employers when measured against the wages found in the rest of the global village before we can figure out what will be affordable in the way of a home price.  Only then will the housing market stabilize.  I'm not happy about this reality, but I don't see much point in denying it.



LawsofPhysics's picture

Fuck you, how about we start by rewarding those who have been paying their mortgages, period?  You want a fucking recovery?  Reward good behavior and prosecute the fucking fraud, re-establish the rule of law.  Do that and confidence and faith will be restored and you will have a DOW 50,000 in no time.

By I digress, you satire is appreciated.

Leopold B. Scotch's picture

Bumper Stickers:

Squatters are people, too.

I Squat and I Vote

I Got Boned Keeping Up with the Jones's

XitSam's picture

I upmod you for sentiment, but how 'bout the government stop picking winners and losers? How 'bout we end the Fed? How 'bout the government stop borrowing money? /rant 

Alex Kintner's picture

 Isn't that what Obama Refinance plan does?
 The current underwater mortgages are liabilities to the banks. If the home owner defaults, the bank takes the loss.
 With the Obama Refinance plan, the newly Refinanced mortgage is now insured by Fannie Mae or Freddie Mac (aka it becomes a liability to the taxpayer). The bank of the original underwater mortgage walks away with 100 cents on the dollar for the bubble priced property when the mortgage is refinanced.

 here's a link to my reference

Dr. Richard Head's picture

I have, reluctantly, paid my mortgage on time for 5-years.  While currently underwater, I am in the middle of a no income verification, no asset verification, no appraisal refinance.  So much fun. WEEEEEEEEEEEEEEEEEEEEEE!!!!!!!!!!!!!!!!!!!!

riphowardkatz's picture

No way. Everyone here says that lending standards are getting tighter. You must not be telling the truth. 

I Got Worms's picture

Sold my house in Texas in January of 2011. Got asking price from some newlyweds in their mid-late 20's. Would've take quite a bit less, but they didn't even ask. I almost fell out of my chair when I saw that they were only required to put 1.5% down on an FHA loan. I think they lost their equity before we walked out of the title company's office. (BTW, after paying all debt, every stinking penny purchased phys gold and silver).

Like Greg Focker, I rent now, and think I am a genius.

Alex Kintner's picture

Yeah, I was not saying home owners should not get a break. Just saying every damn program benefits banks at taxpayer expense. The program should be structured so banks take the loss for their own risky behavior. Good luck with the mortgage.

mayhem_korner's picture

Methinks we need a massive new stimulus package to pay off all the mortgages of those who are "under water" or have stopped paying on their mortgages.

This is fair, because those that can afford to pay their mortgage are doing so on a timely basis and need no such help.


Nice.  Big ol' money velocity boost like that just might get a loaf of bread on par with a house at...oh...$5,000.

max2205's picture

Funny. I thought Obummmer fixed this two weeks ago.


WhiteNight123129's picture

I think the Treasury should buy homes and rent them, at least the Treasury would get a real asset instead of the Fed propping up pieces of paper and the Treadury could get some  income. I guess communism and state control is just how an insolvent state restore "some" balance sheet during hyperinflation. France confiscated the Clerge' assets during its hyperinflationary revolution. Confiscation happened in 1917 (400% inflation) in Russia as well as a in China in 1948 which was also hyperinflationary. I guess purchaing assets with counterfeited money is also confiscation, that happened with Assignats inthe French revolution, LBO is the same thing.

bdc63's picture


There are enough people on the sidelines (me included) that feel they have noth'in but time to buy that vacation/retirement property ... if I were told that the easing had come to an end and starting at the next FED meeting they would be initiating their period of tightening ... well lets just say I'd be on the next plane to Florida to lock in my once-in-a-lifetime low rates.

But as long as rates are low, what's the hurry? -- if I wait another year or two I'll probably get the house for 10%-20% below where it is today AND get that absurdly low rate ...

Its really mind blowing to me that they don't see that.

trav7777's picture

it's mindblowing to think that you believe that there are enough people on the sidelines to do anything other than cause a deadcat.

The banks can barely lend money for free at this point.

bdc63's picture

I know sometimes it seems like EVERYBODY in America has lost their job and EVERYBODY is underwater on their mortgage or is in foreclosure.  But it just isn't true.

30% of all homes in the United States are owned outright with no mortgage at all.  Many professions/industries have fared very well during this recession ... engineering/defense, computer science, nurses/ pharmacists/ dentists ...

I suspect my demographic is bigger than you think.

LawsofPhysics's picture

I agree, I am "sidelined" in both cash and physical.  I won't do shit unless I know that the actual rule of law will be enforced.  The paper-pushers are clearly getting desperate, just wait.   why take a risk now, especially when little guys actually have to shoulder that risk while big corporations make bad decisions and get bailed out.  For now, simply front-running the predictable bad behavior is much more lucitive.

The only issue with raising interest rates is debt-servicing.  

Leopold B. Scotch's picture

Precisely as Von Mises wrote about it before the first Great Depression:  Each intervention sowes the seeds of the next, until eventually the economy / prices become so distorted, the entreprenuerial classes will cease investing and engaging in ordinary commerce -- since the rule of law is gone -- and will engage instead in speculatively front-running the policy makers. 

Why risk capital trying to run a business overburdened by technocrat regulation, taxes, dwindling profits, when you can simply play the monetary intervention speculative trades?

Kickaha's picture

I sense a "chicken/egg" sort of issue here.  Financial speculation is like jerking off without coming unless prices are destabilized to the point where large movements up and down make the speculation more likely to pay off big time.   The more speculators that join the game, the bigger the price swings.  It also helps if the Fed prints a couple of trillion dollars for the banks to forward to their prop desks.  At some point, speculation will become more profitable than doing any sort of real work. 

Imagine if the government bailed out the suckers who lost their shirts in the local casino?  Pretty soon, there would be lines around the block just to get inside so you could elbox your way up to the craps table.

Over time, it looks to me like a downward spiral would commence.  I'm not sure I'd lay the blame on the government as being the first cause.  The easy money gained via MBS and CDS sales had at least as much to do with it.  It's kind of pointless presently to point the finger of blame across the vortex while everyone is spiraling down the drain.

twotraps's picture

LawsofPhysics, totally agree.  Long time to be in cash but the 'rule-changing' and lack of prosecution of simple stuff is mind boggling.

DeadFred's picture

I know a half dozen people including me on the sidelines right now. Now is looking really nice except for that wave tsunami of foreclosures that's about to hit the market. I'm guessing the "fix" of the bank fraud situation is behind the week/week drop. A lot of people are waiting for some truly great buys in a few months. Hope those rates are still there.

WhiteNight123129's picture

Gold dealers are doing great too.


??'s picture

WTF "I'd be on the next plane" 


10%-20% off  of $30k for a doublewide ...  go on take the plunge

JohnKozac's picture
107 months of inventory: How many months it would take to sell banks’ current and shadow inventory of foreclosed homes.





battle axe's picture

The FED failed? No WAY. I can not believe it...sarc

LawsofPhysics's picture

Ouch, long mud and grass huts.

francis_sawyer's picture

I hope at least Obama is still paying Peggy Joseph's mortgage...

Conman's picture

Wow you mean those high quality ,low wage jobs added didnt push those suckers into overextending themselves(again) to buy a home this time? Who woulda thunk it!?

AC_Doctor's picture

Oh snap, Binky Bennie has a 30+% of his 3 trillion portfolio in shit mortgages!

Chief KnocAHoma's picture

Calm down Tyler. February is always the slowest month of the year, every year.

There will be no housing BOOM, but we are seeing a market regain its legs at levels that reflect a steady, healthy market, albeit that is still months away. The bubble disrupted the normal cycle, but we will return to the mean.


kridkrid's picture

I'm guessing that this post is sarcasm, but if not... the mean to which you refer is still a ways below where we are now.  The gov'ts attempt to re-inflate the bubble disrupted the return to the mean, but only for a short while.  To return to a number that make snse historically, prices would need to come down another 20%+... but our entire monetary system will collapse before that happens.. after that, all bets are off.

WonderDawg's picture

Yep, if we're reverting back to the mean, we have a ways to go, yet. Not to mention, when bubbles pop, they generally snap back to below the mean before recovering to the mean. So, make that 20% more like 40% and then maybe a recovery. If the financial system survives.

riphowardkatz's picture

Great logic. The fed can create bubbles but they are inept at reinflating them? Makes no sense. If they want housing to appreciate in nominal terms they will appreciate in nomincal terms. 

What is your point about a return to the mean being way below where we are now? No one said it wasn't.

Your 20% number is pulled out of where the sun don't shine. In gold terms housing has never been cheaper. Rents are starting to exceed 30 year mortgages. Fannie and Freddie are making it easier and easier to buy houses. 

kridkrid's picture

What makes no sense... are you watching?  Do you not think that the housing bubble was fed induced?  As Paul Krugman told us, "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble" - which is exactly what Greenspan did.  But once you go zirp, there isn't a whole lot of additional juice the fed can inject.  So they got all creative with other gov't backed sweeteners and did have some success in slowing the collapse... but gravity will win.

riphowardkatz's picture

They have not even begun to get started in their efforts. These are beauracracies stuff doesnt happen over night. Here is a list of things they can do

even lower mortgage rates 
land banks
easier borrowing terms from fannie and freddie
more tax incentives
force banks to lend
dump piles and piles of money from helicopters eventually people will look for some refuge. Facebook or something with utility.


kridkrid's picture

These end game acts of desperation won't yield success, IMO.  But I shouldn't underestimate the stupidity of people.  But stupid people will still need a job of some sort to make any of this work.  Perhaps we should build a few pyramids to the moon or mars.