As was expected, the October Case Shiller data [9]showed that the recent transitory pick up in the housing sector, now that both REO-to-Rent and Foreclosure Stuffing, not to mention unparalleled debt forgiveness by virtually every bank has been thrown at the housing problem, continues with a ninth consecutive month in Top 20 Composite Index increases, rising 4.3% in October. On the other hand, based on the NSA data, the 4th consecutive dead cat bounce may be coming to a much expected end with October NSA data posting the first sequential decline since March. What drove the pick up in Seasonally Adjusted data? Nothing short of yet another housing bubble in the much beloved speculative areas such as Phoenix and Detroit, where home prices rose by 21.8% and... 9.9%. Yes: apparently one can pay for mortgages with foodstamps now.
Other places such as Chicago and New York were not so lucky, with the average price declining by -1.3% and -1.2% in the past 12 months. What remains unsaid - very much on purpose - is that the shadow inventory problem is only getting worse, as we reported a week ago, when we showed that nearly half the market cap of Bank of America is in 6 month + delinquent mortgages, or mortgages that are not yet in foreclosure but virtually certainly will be, and will also be discharged.
Why are banks stuffing foreclosure inventory from hitting the market? Simply: to create an indirect housing subsidiy, by removing inventory from the market. And with trillions in excess reserves sloshing on bank balance sheets, banks can for the time being, avoid any accounting of the lost cash flow and merely hope and pray that by delaying the avalanche of shadow inventory hitting the market, the price will rise enough to where millions of houses can once again be placed on the market quietly and efficiently. That this idiotic plan will blow up in the bankers' faces (not to mention all those funds who jumped on the REO-to-Rent bandwagon) goes without saying, but for now the music is still playing so one must dance.
The recovery in context: back to 2003 levels.
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