Fantasy Housing Numbers a Prelude to the Next U.S. Crash 66 comments
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There are two sources for most housing data in the United States. One source is the National Association of Realtors (NAR). Given that this organization represents only people who sell U.S. residential real estate for their livelihood, this is an extremely biased entity – with an obvious agenda. They represent the more reliable source for data.
The other major source of data is the U.S. government, itself. I have written volumes on the legendary excesses of the U.S. government in manufacturing numbers which are ever-further divorced from the real world. As an example, at the beginning of this year, when the Case-Shiller index was reporting that the collapse in U.S. housing prices had reached their most extreme level (a year-over-year decline of 19%), the U.S. government was reporting that U.S. home prices were rising.
As with many other U.S. government “statistics”, I now pay absolutely no attention to government housing propaganda. While it is possible to critically analyze mere exaggerations, there is no analytical value to numbers which are simply invented – and in direct contradiction with what is actually happening in markets.
This leaves the biased NAR as the “best” source for most U.S. housing data. In a report released Friday, the NAR stated that existing home sales had increased to a level of 5.57 million units – the highest since July 2007, crowed the NAR. That was right about the time that the U.S. housing crash first turned really ugly. However, those days are already long-forgotten by the NAR.
Lawrence Yun, the giddy “chief economist” of this organization is claiming that U.S. “housing inventories” have now fallen to a level equal to 7.8 months of supply – and a supposed 15% decline from just the beginning of this year.
This is where the NAR severs all ties with reality. The NAR also acknowledged that “distressed sales” which include foreclosure sales, sales of “repossessed” homes (i.e. “walk-aways”) and “short sales” accounted for just 29% of all sales in its latest report (similar to numbers reported for most of this year). Thus, with U.S. housing sales at their highest level in more than two years, the banks controlling all this “distressed” real estate are on pace to sell only about 1.5 million “distressed properties” this year.
In fact, foreclosures alone are on pace to hit about 4 million units this year – after more than one million foreclosures in the third quarter alone. “Repossessed” homes are on pace to add roughly an additional half-million “distressed properties” to this inventory. I'm unaware of any aggregate statistics on “short sales”, but as a favored choice for both homeowners and banks (versus the alternative of foreclosure), these also obviously total in the hundreds of thousands (at least).
Thus, as I reported in a commentary on the U.S. housing sector about six weeks ago (see “U.S. foreclosures/repossessions on track to hit 5 million in '09”), the total amount of “distressed properties” in the U.S. - generated in just this year – is roughly 5 million units. With U.S. banks on pace to sell about 1.5 million distressed properties this year, this leaves 3.5 million additional units which are being added to the inventory of empty/unsold homes in the U.S.
What this means is that U.S. banks by themselves are holding as much inventory (from just this year) as Yun claims exists in the entire U.S. housing market. Put another way, the only way in which the NAR's “inventory” number would have any validity is if not one, single U.S. homeowner had a home listed for sale.
Returning to the real world, 25% of U.S. mortgage holders are “underwater” on their mortgages, with more than 10,000 additional U.S. homeowners entering the foreclosure process every day – and millions more homeowners only a (missing) paycheque away from joining that category. In other words, there are millions of highly-motivated sellers – easily surpassing the 3.5 million housing units which U.S. banks have added to their existing inventory of unsold homes.
Keep in mind that U.S. banks have been accumulating empty/unsold properties for roughly two years – as “distressed sales” have never kept pace with the rate at which banks are accumulating these properties since the U.S. housing collapse began. A conservative estimate is that they are currently holding roughly 5 million empty/unsold units – equal, by itself, to a year's worth of consumption.
Add to that the millions of U.S. homeowners desperate to sell in order to avoid foreclosure, and the return of large numbers of speculators to this market and this represents at least another 5 million units of inventory – since speculators don't buy-and-hold houses, but rather put them back on the market (either immediately, or after some cosmetic changes).
As a result, none of these speculator-purchases remove any inventory from this market. True, in theory, speculators can rent-out the homes they purchase. However, with U.S. housing vacancies already at their highest level in 23 years and still soaring higher (see “Rising U.S. vacancies mean ALL real estate going DOWN”), the combination of crumbling rental prices and huge over-supply means that any speculator foolish enough to become a “landlord” rather than simply trying to “flip” properties is doomed to be just another foreclosure victim.
There have been a number of recent reports attempting to “pump” this market – which actually claim that buyers are having a hard time finding “distressed properties” to buy. Don't believe a word of this nonsense. As a Canadian, I have been getting spam in my own e-mail every day - “alerting” me to the wonderful “investment opportunities” of buying distressed U.S. real estate. In recent weeks, this has increased to several pieces of spam every day. Presumably such spam is also bombarding Europeans, and investors in any other countries who actually have some spending power.
Ultimately, what this means is that in the real world, there are about 10 million units of “inventory” - which represents nothing more than “REO” homes (those held by the banks), the properties being flipped by speculators, and “distressed” homeowners who are desperate to sell. This estimate excludes any “normal” sellers in the market (i.e. people simply wishing to move to relocate of their own volition).
Thus, the “official” inventories of unsold homes represent less than 1/3rd of actual inventory, and most likely only about ¼. The reality is that U.S. housing inventories have risen to their highest level in history – and added millions of units to the 19 million empty homes which existed a year ago.
When stacked up against real inventories, the sales of only 5 million units this year sets up another nasty “leg” downward for this market by itself. However, as I (and an increasing number of other commentators) are reminding people the second spike in mortgage-resets for the dreaded “ARM mortgages” (adjustable-rate mortgages) is just about to begin.
[Note: this chart only includes data up to January 2007, so it does not include all future, mortgage resets – since U.S. banks were still creating more of these mortgages in 2007.]
As the graph above illustrates, the U.S. has already suffered through the first spike in these mortgage resets – indeed, this market is currently in a brief lull, between the end of the last spike and the beginning of the next. The big difference between the first spike and the second is that unemployment was only beginning to be a serious problem for the solvency of U.S. homeowners during the first spike, while the 2nd spike will occur with employment conditions at their worst level in 70 years. (“Shadowstats.com” puts current U.S. unemployment at over 20% and rising).
Thus, the next spike in mortgage resets was also guaranteed to cause another down-leg in this market – by itself. Roughly $600 billion worth of such real estate (its current, nominal value) is due to implode onto this market over the next two years.
When we combine this with a “shadow inventory” of at least seven million units more than the laughable numbers from the NAR, and an unemployment problem which will be much worse next year than this year, the overwhelming evidence is that the next leg down for the U.S. market will be at least as bad (if not worse) than the previous leg down.
For the U.S. financial sector, this next crash in residential housing comes just as the crash in U.S. commercial real estate has worsened into a crisis of its own. Combine this with record rates of delinquency which are simultaneously occurring with every other category of bank credit to U.S. consumers, and obviously the losses ahead for the U.S. financial sector will greatly exceed the losses already incurred.
To my regular readers, I apologize for the continual need to repeat much of this analysis. However, as I have observed before, there is only one way to counter a relentless campaign of propaganda – through continued repetition of facts.
Stay focused on the “big picture” and do not allow yourself to be deceived by either fraudulent “statistics”, absurd “spin”, or the occasional, positive “blip” in this market. In even the worst crashes, nothing goes down in a straight line. Given that the U.S. experienced a collapse in its housing market more than three times worse than the worst year of the Great Depression (based on data from the highly respected housing economist Robert Shiller), a “dead-cat bounce” for this market was overdue.
At best, this lull in “the eye of the hurricane” will last to the end of this year. Early next year, the new spike in mortgage-resets will begin. At that point, U.S. banks (who have up until now totally ignored this oncoming disaster) will have to confront this next crisis – which will most likely be characterized by the U.S. media as a “surprise”.
By this point in time, there can be no excuse for responsible adults to be “surprised” by developments in the U.S. economy. The same fools and shills who were “pumping” U.S. markets and the U.S. economy at the peak of the U.S. bubble (and Wall Street Ponzi-scheme) are pumping again. Meanwhile the fundamentals for the U.S. economy continue to deteriorate.
It is only the fact that the U.S. government pretends there is no inflation in the U.S. economy which allows it to pretend that some aspects of the U.S. economy are experiencing a tiny improvement. Even then, most of the statistics it spews are not improvements but simply a reduction in the rate of collapse.
The U.S. propaganda-machine has completely erased this important logical distinction. When the Titanic had already taken on almost enough water to drag it to the bottom of the Atlantic, would rational passengers on that doomed ship really be encouraged to hear that the ship was “only” taking on water at a slower rate - simply because most of the ship was already water-logged?
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This article has 66 comments:
I get unemployment situation is different, however aren
Sorry about first post being cut short.
Again BIAS and TWISTING of OLD Data by Jeff Nielson:
Robert Shiller 4 weeks ago in WSJ 10/2009:
"Yale economist Robert Shiller, who predicted the recent housing bust as well as the Internet bust earlier this decade, says that a meaningful recovery seems to have occurred in the housing market"
“It looks like a major turnaround,” Shiller, whose S&P Case-Shiller housing index has now risen for three straight months, told The Wall Street Journal. “We have some concern that it could be an aberration and temporary. But, at this point, it seems to be evident in just about every city in the U.S. That suggests it’s real.
GreatWhite
Can they spin facts to their benefit Yes, (e.g. when Home sales sunk to 5.5 Million units a year from 7 Million
they chose to emphasize "We had the 3rd Best Year Ever" instead of focusing on 1.5 million less transactions than the peak.)
NAR does not Intentionally seek out to put foreclosures in their Inventory numbers. They are a side data point. If the owners of the foreclosure don't list them in the MLS then they are not counted in NAR inventory numbers. The vast majority end up in the MLS but the pace/gap in time before they get there is the "Shadow Inventory". They do not claim to count foreclosures and have no way of correlating county tax records to retrieve them.
GreatWhite
Housing vacancies are up. Rental properties have crashed. One assumes that means rentals have low demand, high vacancies. Has the population decreased or have families doubled up?
Gross statistics for the US as a whole are very misleading. Not every area of the country have a big housing bust. The greatest declines are almost always where the greatest bubbles were. Those bubbles, as in California and New England, happen to occur where government regulation in the forms of growth control and permitting fees and costs restricted supply severely.
To understand the prospects for housing and the reasons behind it, we have to compare areas where the problem is greatest to areas where it is least or insignificant.
Speaking a bit more cynically, can we not count on Uncle Sucker, who believes that the "right to decent housing" is among the rights guaranteed by the Declaration of Iindependence, to buy up all foreclosed properties (assuring taxpayers that they are making a great investment) and then to fill those houses with the homeless and illegal aliens?
On Oct 25 01:00 PM Taconia wrote:
>.... have families doubled up?
Yes.
and friends have doubled up.
See how all the college grads of the past threee years are living - with their parents or with their friends.
But lets also realize that homebuilders are hardly building anything that doesn't involve an upfront contract. And people keep getting married and having kids so there is some demand that exists.
And while I agree government (or any statistics) can be tilted to show a more positive outcome, I have faith that investors buying homes with CASH have a good idea of where the bottom of the market is at. And I don't think its bad if homes sell for 15% of what they did 2 years ago...or 40% or whatever the market bears - thats how we will clean up this mess.....when homes are sold based only on what the market will bear.
Want to write a negative article - write about how the 8K tax incentive is 1. Causing houses to be sold at higher prices than they should and slowing the market finding the right price to clear inventory. and 2. How many crooks there are in our freaking country taking this and fraudulently claiming the credit.
So now that $1600 mortgage is $3200 and people can't refi at any rate due to banks not lending to fringe people on these loans, they can't get a loan mod unless they stop paying their mortgage and even then banks don't want to do them, so they wait until they get foreclosed on and are saving that $1600 per month, running up credit cards, stashing cash, filing for bankruptcy, extending the foreclosure time to years, while the banks are hording their cash to hold the reserves on all of these non performing assets.
People aren't stupid, they are playing the game as are the banks. No one wants to take the loss, the government is prolonging the day hoping it can stimulate or inflate prices to an amount that will hide the losses on the balance sheets.
On Oct 25 12:17 PM ResidentAlien wrote:
> I get unemployment situation is different, however are not interest
> rates lower and therefore these adjustable mortgages will reset to
> a lower payment - thereby slowing the default rate, as they require
> less income from the homeowner?
> Sorry about first post being cut short.
Another issue that I have seen spouted is that people who bought their houses before the skyrocketing prices were not going to be affected by the downturn in prices because they were sitting on equity. How many of these owners did not take out second mortgages and such to cash in on their exploding equity. Not too many I suspect. So they are in no better condition than those that bought during the bubble years.
On Oct 25 01:45 PM Joseph L. Shaefer wrote:
> I happen to have left my cool and sunny mountaintop aerie of Lake
> Tahoe and am now on business in Miami. What I see here points to
> continuing housing problems from an untracked -- and untrackable
> -- source: "strategic defaults." The front page of today's Miami
> Herald chronicled an individual who paid $125,000 for a condo now
> worth $35,000. He simply stopped making payments on the condo a year
> ago, not because he can't afford it, but because he is so far underwater
> it doesn't make sense for him to, in his mind. Rather than do the
> ethical thing and leave, however, he is using the money he would
> have paid to the mortgage lender to pay off credit cards, car loans,
> etc. When / if the bankers finally get around to evicting him, he'll
> have lousy credit but no debts and a steady job. We can speculate
> on the size of this shadow market of foreclosures but we won't know
> who will walk away, who will continue to be squatters until they
> are forcibly ejected, and who will pay...
On Oct 25 01:00 PM Taconia wrote:
>.... have families doubled up?
Yes.
and friends have doubled up. See how all the college grads of the past three years are living with their parents or with their friends. <
It would probably amaze most Americans, Canadians, Aussies, Kiwis, and western Europeans how long this practice of has been going on in Asia... for approximately 9,000 years. It's called "family life".
On Oct 25 12:17 PM ResidentAlien wrote:
> I get unemployment situation is different, however are not interest
> rates lower and therefore these adjustable mortgages will reset to
> a lower payment - thereby slowing the default rate, as they require
> less income from the homeowner?
> Sorry about first post being cut short.
On Oct 25 03:22 PM anvn wrote:
> What i think the housing market might be improving especially in
> the next two years. Here is why, most people who are short selling
> their home got to live rent free in their homes for about 6 months
> to two yeas. That will help them save some money for a down payment.
> These people will buy again since buying a house is cheaper than
> renting a house. But it is really depend on the interest rate within
> the next two years.
They are screwed. Most of those with these loans had marginal credit to begin with so they wont qualify for a new loan and unless they can come up with the additional 100,000. Ain't happening. Foreclosures are imminent.
KISS IT GOODBYE!!!
On Oct 25 04:47 PM enigmaman wrote:
> Thats not the way ARM work, just because the index falls doesnt mean
> the interest rate will, they take the average for say the five year
> arm index rate and then add the margin of normal 2.75% to that, the
> bank can raise the rate no more then 2% over the previous. So if
> you started with 5% for five years and the average of the five year
> is 2.5% they add 2.75% to that rate giving you an effective mortgage
> rate of 5.25% so your rate can go up in a declining mortgage market,
> this will be the case with most because they were offered at below
> market rates
Even if people were not "doubling up" with relatives, keep in mind that there were millions of units built solely to satisfy speculator demand - where there were NEVER enough households to go around.
Secondly, with the "exurbs" that sprang up around many of the "hotter" markets, there will likely NEVER be buyers for many of these homes - especially the high-end homes, because commuting costs have risen so much in recent years.
Yes, the big losses SO FAR have been in the "bubble" markets - because those prices were so far above other regions. Now prices have equalized to a much greater degree. What will likely happen in the next leg down is that the losses in the hardest-hit regions will not be as bad, but that the drop in prices will be more distributed across the U.S.
Keep in mind that there is NO income-gains to support rising prices even in regions which didn't have huge gains. A return to NATIONAL prices to back where they were in the mid-1990's is a likely scenario, although since markets usually over-shoot in big moves like this, even larger TEMPORARY price-declines are certainly possible.
On Oct 25 01:00 PM Taconia wrote:
> First a question, then a correction:
> Housing vacancies are up. Rental properties have crashed. One assumes
> that means rentals have low demand, high vacancies. Has the population
> decreased or have families doubled up?
>
> Gross statistics for the US as a whole are very misleading. Not
> every area of the country have a big housing bust. The greatest
> declines are almost always where the greatest bubbles were. Those
> bubbles, as in California and New England, happen to occur where
> government regulation in the forms of growth control and permitting
> fees and costs restricted supply severely.
>
> To understand the prospects for housing and the reasons behind it,
> we have to compare areas where the problem is greatest to areas where
> it is least or insignificant.
As far as the homebuilders go, as has been the case for nearly two years, they have been BUILDING at least 50% more units than they are selling EVERY MONTH. Last month was the first time this ratio dropped below 50%.
This is why you NEVER, EVER see "new home sales", and "new home starts" mentioned in the same news item. This way they can "pump" both numbers (separately), rather than acknowledge this hugely, negative trend.
Again, you must SERIOUSLY question how "new home inventories" are officially DECREASING, given these parameters.
On Oct 25 02:20 PM davidbdc wrote:
> Too much doom and gloom. Yes there are undoubtedly lots of homes
> that the banks will foreclose on and that they hold on their books.
>
>
> But lets also realize that homebuilders are hardly building anything
> that doesn't involve an upfront contract. And people keep getting
> married and having kids so there is some demand that exists.
>
> And while I agree government (or any statistics) can be tilted to
> show a more positive outcome, I have faith that investors buying
> homes with CASH have a good idea of where the bottom of the market
> is at. And I don't think its bad if homes sell for 15% of what they
> did 2 years ago...or 40% or whatever the market bears - thats how
> we will clean up this mess.....when homes are sold based only on
> what the market will bear.
>
> Want to write a negative article - write about how the 8K tax incentive
> is 1. Causing houses to be sold at higher prices than they should
> and slowing the market finding the right price to clear inventory.
> and 2. How many crooks there are in our freaking country taking this
> and fraudulently claiming the credit.
> They are screwed. Most of those with these loans had marginal credit
> to begin with so they wont qualify for a new loan and unless they
> can come up with the additional 100,000. Ain't happening. Foreclosures
> are imminent.
>
> KISS IT GOODBYE!!!<
doubleguns, have you heard of or seen this movement that's afoot? Basically the courts are agreeing with homeowners who challenge the holder of the mortgage to provide the proof that they're owed that mortgage money. 90% of the time now, it's not the original bank because you're mortgage has been bundled up and sold to someone else, so they can't prove it, and POOF, the homeowner gets his home back, FREE AND CLEAR of any mortgage.
Check out Edward Harrison's very cool article here. Pure heavenly justice:
seekingalpha.com/artic...
On Oct 25 03:08 PM surgcare wrote:
> I agree with most of what you say , but you need to explain one thing
> , which I believe to be extremely important . If mortgage rates are
> going to re-set in the new year , they should re-set to a lower interest
> rate . In fact this just happened to me . My interest rate was cut
> in half from 3 years ago , significantly reducing my monthly payments
> . Therefore please explain how mortgage interest rate re-sets , to
> lower rates , will make things worse ?
My, my. Will wonders never cease?
On Oct 25 12:52 PM GreatWhite wrote:
> NAR "Sold" and "Pending" are facts!
>
> Can they spin facts to their benefit Yes, (e.g. when Home sales sunk
> to 5.5 Million units a year from 7 Million
> they chose to emphasize "We had the 3rd Best Year Ever" instead of
> focusing on 1.5 million less transactions than the peak.)
>
> NAR does not Intentionally seek out to put foreclosures in their
> Inventory numbers. They are a side data point. If the owners of the
> foreclosure don
> OMG! GreatWhite/Nickelman/G... just posted a response that was actually
> about the article. My, my. Will wonders never cease?<
Great observation. If that idiot would just get off Jeff's case, behave with some class and offer something useful (which he appears capable of doing), perhaps other readers could focus a little better on the topic at hand and maybe, just maybe benefit from something GW has to say.
Overthrow the neo-classicists who understand the importance of expansion but not contraction.
On Oct 26 01:46 AM Grumley wrote:
> The scariest part to all of this, is the government's decision to
> put housing front and center as the means for an economic recovery,
> let alone their own salvation. What this underscores is that if housing
> is touted as our white horse, and housing is directly reliant on
> people having a job and paying their mortgage, unemployment is no
> longer a trailing indicator.
Not only does California have 50%+ of the Option ARM loans, but it also has arguably almost the highest unemployment in the nation (behind Michigan) at around 17% (depending on how you calculate it). When you take this combination and compare it to a state like Missouri that has more like 9% unemployment and less than 1% residential loans being Option ARMs, it's clear to see that the pain will continue to be spread unevenly throughout the country.
I am definitely not suggesting that some areas will be pain-free. However, I contend that the truths of this article will continue to be pronounced in the bubble markets and rather mild in linear markets that have less of an employment problem (or Option ARM reset issue).
Jeff, good comment about Investors and how sales from banks to investors will most likely not help curb the housing supply - until an end user buys, its technically still in play...
Also, where the heck will all these buyers come from to soak up the supply? The recently laid off middle class who is either stuck in their home for a while or giving back the keys to the bank? The newly graduated college student with no job or savings (paying off college debt)? The baby boomer (now called the sandwich generation) who is now supporting his recently graduated, unemployed children and dying parents who didnt save enough money to support themselves in retirement?
I'm expecting the next down-leg to be less unevenly distributed than the last - for two reasons.
First, the huge regional disparity in average housing prices has been greatly reduced - since the areas that went up the furthest/fastest have already fallen the hardest.
Secondly, a greater percentage of "distressed" sellers will be "distressed" because of unemployment - and job-losses will also likely be more evenly distributed in the future for some of the same reasons.
But, yes, certainly not all states will suffer equally.
On Oct 26 12:08 PM dirtyharry wrote:
> I certainly agree with the essence of this article, but regional
> and state dynamics have been overlooked. Jeff touched on this in
> a couple of his comments, but there's more. About half of all Option
> ARM loans were written in California, and a great majority of the
> balance of these loans were written in other "bubble states" like
> Florida, Arizona, and Nevada. Even though these states have already
> suffered a greater decline in property values than the non-bubble
> states, because of this Option ARM reset issue they are still MORE
> susceptible to large declines relative to those non-bubble states.
>
>
> Not only does California have 50%+ of the Option ARM loans, but it
> also has arguably almost the highest unemployment in the nation (behind
> Michigan) at around 17% (depending on how you calculate it). When
> you take this combination and compare it to a state like Missouri
> that has more like 9% unemployment and less than 1% residential loans
> being Option ARMs, it's clear to see that the pain will continue
> to be spread unevenly throughout the country.
>
> I am definitely not suggesting that some areas will be pain-free.
> However, I contend that the truths of this article will continue
> to be pronounced in the bubble markets and rather mild in linear
> markets that have less of an employment problem (or Option ARM reset
> issue).
That reminds me about an issue I didn't address in a previous question: that some ARM borrowers will have LOWER payments because of current, low interest rates.
Yes, a small number will, but with most of these loans, the "teaser" rate was so low that borrowers will still see rises in their payments. As for the option-ARM borrowers, even the small number who get a lower rate will likely pay MUCH more because most of those people were making payments so low they were steadily ADDING to their principal.
Those people will now have to start making payments on 110% to 115% of the original principal. Even with a lower rate that likely means a doubling of payments - if not more.
On Oct 26 03:24 PM Bigman16 wrote:
> even if your interest rate goes down a bit, you are still paying
> (or starting to pay) principal right? And if you bought at the peak,
> you are probably paying back double what your house is worth today...so
> its not the actual interest rate reset that will contribute to foreclosures,
> its the borrower understanding this concept and deciding to walk
> now. I think the loans that reset on the Option ARMS are potentially
> in worse condition due to the fact many borrowers were paying the
> neg. am. payment, which basically increases your principal balance
> over time.
>
> Jeff, good comment about Investors and how sales from banks to investors
> will most likely not help curb the housing supply - until an end
> user buys, its technically still in play...
>
> Also, where the heck will all these buyers come from to soak up the
> supply? The recently laid off middle class who is either stuck in
> their home for a while or giving back the keys to the bank? The newly
> graduated college student with no job or savings (paying off college
> debt)? The baby boomer (now called the sandwich generation) who is
> now supporting his recently graduated, unemployed children and dying
> parents who didnt save enough money to support themselves in retirement?
An interesting question, not discussed is the TAX consequences of individuals being forgiven debt. Many years ago I lost a property in Alaska and had to pay capital gains on the difference between what it was sold for and what I owed. It was a big bite and I wonder if anyone is considering if this has an impact on the millions of citizens who have lost their homes and are basically broke, but have a debt to the IRS. What say you all?
So far from what I have seen the unemployment, while it has increased in all areas, is not evenly distributed:
en.wikipedia.org/wiki/...
These numbers are supposedly from BLS, and obviously as we know and have discussed are skewed lower than "real" unemployment figures.
But to address your first comment: I would certainly agree that the disparity of average housing prices has been reduced. As you stated, those bubble markets that rose the most have fallen the hardest. However, just stating that because houses have less price disparity from state to state doesn't address the negative equity situation that has been created. In the wake of bubble markets collapsing, said markets have left homeowners severely upside down on their equity. In some cases, this could be several hundreds of thousands of dollars.
I know you are aware of this. Ultimately while the pricing disparity may have diminished, those in the bubble markets are much more likely to walk away from their properties and add to their houses to the regional inventory pool. Homeowners in the more linear markets may be upside down on their equity, but on orders of magnitude lower.
These states also tend to have lower unemployment than the bubble states.
On Oct 26 04:02 PM Jeff Nielson wrote:
> First, the huge regional disparity in average housing prices has
> been greatly reduced - since the areas that went up the furthest/fastest
> have already fallen the hardest.
>
> Secondly, a greater percentage of "distressed" sellers will be "distressed"
> because of unemployment - and job-losses will also likely be more
> evenly distributed in the future for some of the same reasons>
> But, yes, certainly not all states will suffer equally.
On Oct 25 12:17 PM ResidentAlien wrote:
> I get unemployment situation is different, however are not interest
> rates lower and therefore these adjustable mortgages will reset to
> a lower payment - thereby slowing the default rate, as they require
> less income from the homeowner?
> Sorry about first post being cut short.
I would say:think about where the NEXT wave of job losses is going to come from. The first wave was construction, manufacturing, and financial sector jobs. Those areas have likely fallen about as low as they can go.
However, the continuing weakening in the retail sector, the collapse of the commercial real estate market (and the defaults/bankruptcies to come), AND the collapse of government revenues means the next wave of job losses will be government jobs and service sector jobs. Since those jobs are distributed relatively evenly across the U.S., I would think that state-to-state comparisons will be much more even.
The flip-side of those states where most homeowners still have positive equity in their mortgages is that if job-losses force these owners to sell, they can afford to let prices fall farther - and still exit at least breaking even. It would be premature for those states who were not severely affected by the first leg down to assume they will also do much better in the next leg down.
On Oct 27 09:19 AM dirtyharry wrote:
> Jeff -
>
> So far from what I have seen the unemployment, while it has increased
> in all areas, is not evenly distributed:
>
> en.wikipedia.org/wiki/...
>
>
> These numbers are supposedly from BLS, and obviously as we know and
> have discussed are skewed lower than "real" unemployment figures.
>
>
> But to address your first comment: I would certainly agree that the
> disparity of average housing prices has been reduced. As you stated,
> those bubble markets that rose the most have fallen the hardest.
> However, just stating that because houses have less price disparity
> from state to state doesn't address the negative equity situation
> that has been created. In the wake of bubble markets collapsing,
> said markets have left homeowners severely upside down on their equity.
> In some cases, this could be several hundreds of thousands of dollars.
>
>
> I know you are aware of this. Ultimately while the pricing disparity
> may have diminished, those in the bubble markets are much more likely
> to walk away from their properties and add to their houses to the
> regional inventory pool. Homeowners in the more linear markets may
> be upside down on their equity, but on orders of magnitude lower.
>
>
> These states also tend to have lower unemployment than the bubble
> states.
>
On Oct 25 12:17 PM ResidentAlien wrote:
> I get unemployment situation is different, however are not interest
> rates lower and therefore these adjustable mortgages will reset to
> a lower payment - thereby slowing the default rate, as they require
> less income from the homeowner?
> Sorry about first post being cut short.
Do you expect California to be hit hard in the next wave? I live north of LA. The Palmdale, Lancaster area. Thanks.
Are you in South America?
On Oct 27 04:25 AM SlimJim wrote:
> Thanks for this article and the comments...I have a feeling there
> are people making comments here who are experiencing difficult situations
> with their housing are employment situation...Do your own homework
> to figure out the options available...I did this six years ago at
> the age of 62...Had a mortgage of one hundred sixty thousand on a
> home in Cape Coral, Florida and a wife who just came home with another
> man's baby in her stomach...I walked out on the mortgage and filed
> bankruptcy to boot to clear me of a debt overload accumulated to
> accomodate my wife and her other three children acquired from other
> episodes prior to our relationship and marriage...I was working long
> hours six and seven days a week as a ceramic tile setter...Sixty-two
> years old at the time...Move to another country and live in a two
> bedroom furnished apartment with utilities included located on a
> mountainside...I pay two hundred and fifty a month rent...No headaches...Thanks
> again for the article...Jim
The truth hurts!
I was not happy to tell many of these facts to my local business network, Realtors and NAR members in a meeting back in 2004 before this mess started. The majority said Im nuts and don
1. The banks (to the tune of 700B+ as well as 7T in loan guarantees
2. The credit card companies (buying credit card receivables)
3. Detroit (The GM bailout #1, Cash-For-Clunkers, possible bailout #2)
4. Foreign Central Banks with currency swaps.
QUESTION: When are they going to bailout the taxpayers?
The only thing they have done for homeowners is a $8000 credit. It is very restrictive. You only get it if you are a new homeowner, etc, etc. It does not help existing homeowners (unless they sell).
$8000 for a $160,000 house is 5% of the purchase price
$4500 for a $18,000 car is 25% of the purchase price.
According to the government, cars are more important than houses.
When the banks foreclose on the houses, the people can sleep in their shiny brand new cars.
So far this year there have been a little over 500,000 final stage foreclosures, likely there will be another 500,000 before the end of 2009 (those are running at a little over 75,000 a month now).
seekingalpha.com/artic...
On Oct 28 11:51 AM Living4Dividends wrote:
> So far, the US Govt has bailed out:
> 1. The banks (to the tune of 700B+ as well as 7T in loan guarantees
>
> 2. The credit card companies (buying credit card receivables)
> 3. Detroit (The GM bailout #1, Cash-For-Clunkers, possible bailout
> #2)
> 4. Foreign Central Banks with currency swaps.
>
> QUESTION: When are they going to bailout the taxpayers?
On Oct 28 11:53 AM Living4Dividends wrote:
> Caveat:
> The only thing they have done for homeowners is a $8000 credit. It
> is very restrictive. You only get it if you are a new homeowner,
> etc, etc. It does not help existing homeowners (unless they sell).
>
>
> $8000 for a $160,000 house is 5% of the purchase price
> $4500 for a $18,000 car is 25% of the purchase price.
>
> According to the government, cars are more important than houses.
>
>
> When the banks foreclose on the houses, the people can sleep in their
> shiny brand new cars.
On Oct 28 11:53 AM Living4Dividends wrote:
> Caveat:
> The only thing they have done for homeowners is a $8000 credit. It
> is very restrictive. You only get it if you are a new homeowner,
> etc, etc. It does not help existing homeowners (unless they sell).
>
>
> $8000 for a $160,000 house is 5% of the purchase price
> $4500 for a $18,000 car is 25% of the purchase price.
>
> According to the government, cars are more important than houses.
>
>
> When the banks foreclose on the houses, the people can sleep in their
> shiny brand new cars.
Just fill out a form. Yep, i'm a 1st time buyer; Get your credit-but only if you pay taxes and income is within a certain range!
Fantasy?
On Oct 28 11:53 AM Living4Dividends wrote:
> Caveat:
> The only thing they have done for homeowners is a $8000 credit. It
> is very restrictive. You only get it if you are a new homeowner,
> etc, etc. It does not help existing homeowners (unless they sell).
>
>
> $8000 for a $160,000 house is 5% of the purchase price
> $4500 for a $18,000 car is 25% of the purchase price.
>
> According to the government, cars are more important than houses.
>
>
> When the banks foreclose on the houses, the people can sleep in their
> shiny brand new cars.
I look "ridiculous" when I cite an anecdote from my own, personal experience. However, it's NOT "ridiculous" when major news organizations report that heresay that ANONYMOUS "buyers" are (supposedly) having difficulty "finding" and distressed properties to purchase.
It's a good thing that YOU have have no biases, Dean.
On Oct 28 01:25 PM Dean M wrote:
> Jeff presents some worthwhile data but him calling the NAR biased
> is definitely the pot calling the kettle black. He is a gold salesman
> so he is heavily biased to present the armegeddon scenario. He makes
> himself look quite a bit ridiculous when he points to email spam
> as a measure of bank owned housing inventory.
far from PAR for the refereces he chooses to use in his articles.
GW
On Oct 28 01:25 PM Dean M wrote:
> Jeff presents some worthwhile data but him calling the NAR biased
> is definitely the pot calling the kettle black. He is a gold salesman
> so he is heavily biased to present the armegeddon scenario. He makes
> himself look quite a bit ridiculous when he points to email spam
> as a measure of bank owned housing inventory.
On Oct 28 05:43 PM Jeff Nielson wrote:
> Let me get this straight, Dean.
>
> I look "ridiculous" when I cite an anecdote from my own, personal
> experience. However, it's NOT "ridiculous" when major news organizations
> report that heresay that ANONYMOUS "buyers" are (supposedly) having
> difficulty "finding" and distressed properties to purchase.
>
> It's a good thing that YOU have have no biases, Dean.
Are you asking me personally?
It sounds like moi.
On Oct 28 05:06 PM gnosis988 wrote:
> Talked to a business partner who is deep in the real estate business,
> works with banks, escrow companies, etc. Confirmed that banks are
> holding onto millions of foreclosed units and not releasing them
> into the market. They know it would flood the market and cause a
> collapse. But new accounting rules do not require a mark to market,
> so they hold it... but early next year, they will have no choice
> but to start releasing some of the units. Many of these are from
> conforming loans in better neighborhoods.
be someone else again, but not until then!
GW
On Oct 28 09:31 PM Johnny Oxygen wrote:
> Hot Dog! Greatwhite has a new name "Dean M".
> Lets see. Now its GreatWhite, Nickelman, Gold loving Puppy, and Dean
> M.
> Imagine what his password list looks like.
www.planbeconomics.com.../
mess. Go figure.
Again with cherry picking of headlines and data you can prove pigs can fly. Yeah!
Get Real!
GW
On Oct 29 12:21 AM Plan B Economics wrote:
> It's official. The 'housing recovery' was an aberration. Even Goldman
> Sachs has said it is a 'false bottom'.
> www.planbeconomics.com.../
One ADDITIONAL factor that is pulling down property values is the neglected homes. As a Realtor,when I show a home that has been vacant for more than a few months it can get "un-livable" very quickly. These distressed homes appeal to only working people, and investors.
The second home/ vacation home buyers really only want to buy perfect condition, model condition homes.
Plus all the would be investors, people that would need reasonable financing to purchase can