The Housing Bubble Isn't Funny Anymore

As bad as things were for investments last year, that is, for everything other than short funds, Treasuries, and gold, if you owned a home it was even worse. Zillow reported that the U.S. housing market declined $3.3 trillion in value last year - that's about $11,000 for every man, woman, and child in the country.

More homeowners than ever before now owe more than their house is worth and there are no signs of the price declines slowing down, though someday they surely will.

According to this story in Bloomberg, Stan Humphries, Zillow's vice president of data and analytics said, "It’s like a runaway train gaining momentum. It’s difficult to say when we’ll see a bottom to the housing market."

As far as the destruction of what we once fondly called "home equity" is concerned, things are much worse than the headlines would indicate since home equity losses come right off the top for homeowners and these percentage declines can be devilish.

Say, for example, you owe $300,000 on a house that used to be worth $500,000 and, after last year's decline, it's now worth $400,000. While your home's value only went down 20 percent, your home equity went down 50 percent.

After another 20 percent decline in home values this year (which looks quite reasonable in many areas) that's a 40 percent decline for your property but it completely wipes out what we used to affectionately call "housing wealth".

That's the stuff that was supposed to pay for the kid's college and your retirement.

Humphries continued, "A witch’s brew of economic insecurity, foreclosures and tightened lending standards are helping to keep hard-hit markets down and to widen the scope of markets showing declines. Negative equity will trigger new foreclosures, and that will add to inventory and depress prices".

It's no wonder that families are moving back in together - once the economy turned south and people started losing their jobs, who could afford those $5,000 mortgage payments.

Certainly not Mr. Tixe of Queens, whose family is featured in this USA Today report.

Last year, Kanessa Tixe's dad had just finished building a three-family house when he lost his superintendent job in February. He wasn't sure how to make the $5,000-a-month mortgage on the new house in Queens, N.Y.

So Tixe and her siblings decided to help out in an unusual way: They moved in. In December, her father moved into the first floor; her stepsister and husband moved into the second floor; and her stepbrother and Tixe took the third floor. The entire family has become roommates, banding together to pay rent and help their dad with the mortgage until he finds long-term tenants.

"We're still living there now. Times are rough," says Tixe, 26, a publicist. "It's been very beneficial that we're all together. My stepbrother and I have a wonderful relationship now. We eat together for dinner, and I've become closer to my dad, too. This is an important time for family to help, the way the housing market is going. Our story is a testament to how families should come together to help with a mortgage."

Well, never let it be said the bursting of the housing bubble doesn't have at least a tiny little silver lining - it's bringing families closer together.

Similar things are undoubtedly going on out here on the West Coast. All those people who bought homes in Riverside and San Bernardino County a few years back - what today is "ground-zero" for the Southern California real estate bust - many of them are probably back living with relatives somewhere in Los Angeles County now.

As for the rust belt - that part of the country that had the unfortunate luck of getting a housing bust without the preceding boom - Luke Mullins at U.S. News & World Report points his readers to a story in the Toledo Blade that has an elected official counseling her constituents to become squatters instead of moving out when the sheriff comes knocking on their door.

After you stop making payments, Rep. Marcy Kaptur recommends the following:

"I'm saying to them possession is 99 percent of the law; you stay in your house," Miss Kaptur said yesterday, continuing a crusade she started several weeks ago in Congress and CNN picked up Thursday night...

She urged homeowners not to panic and leave their home just because they receive a foreclosure notice from their lender, and she said they should demand that the mortgage-holder produce a mortgage audit.

"I say to the American people, you be squatters in your own homes. Don't you leave," she said during a speech in Congress earlier this month.

This kind of stuff used to be great fun to write about but, in 2009, the housing bubble just isn't very funny anymore.

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Comments

[Tradememe:]

Breaking the law is no solution to the housing crisis. It's unbelievable that a House Rep is recommending this. Next, what is she going to advise ? Go to the supermarkets and don't pay. That's the kind of people who are going to vote on the laws of the land.

Feb 04 04:27 AM

[John Preston:]

First of all......income in households in default will be shown....in some future academic study, by some lame, but famous economist, to have eroded substantially or, been wiped out....

100% of the homeowners I counsel currently have experienced this....and ALL of these households had sufficient income to qualify when they took out the debt.....

As jobs get worse, incomes will decline further...and our "housing bubble/correction"....... this never was....will get worse...

While misteakes were made in leveraging income n the credit process, the real stoary here is that this was an income/jobs correction...

Feb 04 08:16 AM

[Dr.Jackpot:]

90 % are paying their mortgage. The rest are deadbeats taking advantage of the situation to cop out at taxpayer expense.

Feb 04 08:44 AM

[Rhett:]

Any government official who advocates breaking the law - any law- should be fired or impeached. Period. There are other ways of dealing with economic hardship - legal ways.

Feb 04 08:46 AM

[mrresponsible:]

I agree with you, the housing market has to be turned around somehow. The rental market in many neighborhoods and cities is beginning to suffer despite a seemingly higher number of people becoming renters. More rental homes are coming on the market with lower rents after investors are purchasing foreclosures to rent. Residents in my rental units are losing their jobs with no savings or backup funds to pay the rent. I wonder how many of the REITS are going to survive because income is surely going down. It is not funny any longer!

Feb 04 09:08 AM

[kelm:]

The news yesterday said 19 million homes stood vacant at the end of 2008. If we assume 4 people per home (though there was overbuilding so maybe they were never all occupied) that is 76 million people who have been displaced in a nation of 300 million. That is one heck of a migration.

Feb 04 09:40 AM

[ArnoldCountry:]

Making a sound business decision to no longer spend good money after bad makes one a deadbeat? If an investor invests in a stock and dumps his losses no one thinks about it. The decision for a consumer is if they do not want to stop their losses, they are allowed to walk away with the credit hit for a while. That is the law and it is lawful. Since, as this article points out, housing is going to drop another 20%, best to cut your losses and rent.

You may not like it but it is a sound business decision.


On Feb 04 08:44 AM Dr.Jackpot wrote:

> 90 % are paying their mortgage. The rest are deadbeats taking advantage
> of the situation to cop out at taxpayer expense.

Feb 04 09:48 AM

[rm:]

The fact that families are coming closer together is a good think, in some cases... provided that they can get along.

I'm by no means a "family values" guy... whatever that means, but I do believe that our society has decimated the family structure and discounted its importance.

So while this is certainly a high price to pay, yes, this would be a silver lining IMO.

But do we ever change our bad habits until we're forced to by our circumstances?

[she said they should demand that the mortgage-holder produce a mortgage audit.]

This is the "low rent" means of dealing with the problem.

Try to have someone find a problem with the closing package and get off on a technicality.

The challenge, though is this: let's say you find a violation, now what? What do you do with your precious violation? Best of luck trying to find a lawyer to take your case on a contingency basis.

Feb 04 09:54 AM

[Guero:]

It's not breaking the law to stay in a house after you received the foreclosure notice on that house. All states have some period of time after notice is recieved in which the occupant can cure the situation. Granted it is a long shot situation, but the occupants don't have to vacate just because the bank sent them the notice. The congresswoman is not advocating breaking the law in this situation.

Feb 04 10:33 AM

[pepe:]

The Congresswoman very definitely appears to be telling the bad-debters to disregard the time limit on vacating and to remain in the foreclosed home as long as they like. The Congresswoman should choose her words more carefully.

Feb 04 01:10 PM

[cadoggy:]

I agree with ArnoldCountry. Walk away. Take the credit hit.

Your credit will be pretty good again in 4 years and will be spotless in 7 years.

Considering that real estate won't begin appreciating again for at least that long it's a no-brainer.

Feb 04 03:01 PM

[Robert H. H...:]

Kelp writes:

"The news yesterday said 19 million homes stood vacant at the end of 2008. If we assume 4 people per home (though there was overbuilding so maybe they were never all occupied) that is 76 million people who have been displaced in a nation of 300 million."

This conclusion is misleading.

Be careful with how the press, including the business press, reports financial statistics. In many instances, there's a reason why the writers are journalists and not, say, math teachers and engineers. In any time series that grows continually, constant percentages of that series will frequently generate "record" results, when measured in absolute terms.

So, for example, the Washington Post reports a "record 19 million" vacant homes here:

www.washingtonpost.com...

But, as the WP even acknowledges, 4.4 million of those vacant homes are "seasonal" homes, e.g., beach or ski houses that tend to show up as "vacant" 6-9 months out of each year.

The reality is that in the fourth quarter of 2008, 10.8% of "year-round" homes stood vacant, compared to 10.4% in the fourth quarter of 2007. That represents an additional 865,000 vacant homes.

Furthermore, for both owned and rental housing, the 90% confidence interval is equal to the difference in the vacancy rates from Q4 2007 to Q4 2008. So one cannot even say with 90% certainty that the vacancy rate has changed at all in the past year.

Finally, the average annual vacancy rate of year-round housing has been 9.7% since 2001 and rising throughout the period. This represents normal frictional vacancy related to home sales, rental vacancies and homes held off the market.

The real story is that the housing stock increased by nearly 2.2 million housing units in 2008, while occupancy increased by only 1.0 million units. But "overbuilding" is an old story and "record vacancies" makes a catchier headline.

Assuming 2.7 persons per household (300 million population divided by 112 million occupied housing units), that means 2.7 million additional people have been sheltered in 2008.


Here's the census bureau's full press release.

www.census.gov/hhes/ww...

Feb 04 03:24 PM

[johnhaskell:]

"She urged homeowners not to panic and leave their home just because they receive a foreclosure notice from their lender, and she said they should demand that the mortgage-holder produce a mortgage audit."

sorry, what part of that is illegal?

I guess it would be better to move out and let vandals destroy the bank's collateral. Yes, that would be better for everyone.


On Feb 04 08:46 AM Rhett wrote:

> Any government official who advocates breaking the law - any law-
> should be fired or impeached. Period. There are other ways of dealing
> with economic hardship - legal ways.

Feb 04 05:37 PM

[Did U Think...:]

Maybe she is looking out for the banker's best interests here. Instead of hitting the street and tossing a molotov cocktail through the front door (which you just know more and more will be doing), they should stay there until at least the bank finds a new buyer. In other words, they should stay there for the next couple years because that's how long it is taking to sell a home these days. Besides that, where did the banks get the money they loaned? In a fractional reserve banking system they just conjured it up from thin air. In other words, they faked it.

Maybe the forclosed family can just fake that they abandoned the place too.

Feb 05 12:14 AM