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10 Reasons Why Real Estate Won't Bounce

1. At best, maybe 25% of all mortgages that have defaulted since the beginning of the subprime crisis has been dealt with via foreclosure and subsequent resale or short sale. 

2. Since the record foreclosure statistics we saw two years ago... we have only had an increase in loan defaults, not a decrease. And yet closed sales do not reflect anything near this quantity. Heck, we don't even have the inventory of homes for sale because the banks have not yet foreclosed on them. Where are some folks are getting the idea that this has been resolved? The only resolution has been relaxation of mark-to-market accounting standards and sweeping the crap under the rug.

3. As of Tuesday, in my area, there are a combined 19,453 active foreclosures that haven't hit the market yet. That's more than twice as many homes that are currently on the market.

4. The homes in some stage of active foreclosure are only a small minority compared to the homes that have defaulted that are not yet in active foreclosure.

5. Prime loan defaults are just now starting to default. The rate is up almost 20 percent from the previous quarter and more than double a year ago... right on schedule and perfectly aligned with this chart, which opponents argue presents "very stale 2005 CSFB data".

6. The magnitude of the prime pool is approximately 3x that of subprime.

7. The payment shock on a 5% five year interest-only loan, that re-sets to a 5% 25 year principal-and-interest loan... is 40%. This means a dude with a $400k loan will watch their payment increase from $1,666/mo to $2,338/mo overnight. This means a dude with an $800k loan will watch their payment increase from $3,333/mo to $4,676.

8. All of these woes exist despite unprecedented stimulus and zero interest rate policy. Imagine what happens when rates rise!

9. Some folks who complain how stale this re-set chart is may benefit from a quick glance at their own mortgage repayment terms. They may be sick of looking at the chart, but it's the only one that seems to be telling the true picture these days. Seems to me this stale chart gains relevance every day.

10. For all the hoopla we heard about derivatives as potential weapons of mass destruction... not only has there not been a resolution, but as far as I can tell, it seems they're still writing them!

Our fearless leaders just voted to raise the limit on our countrywide credit card, so that other countries won't stop lending to us. Wouldn't it be great if we could all do this? Only problem is, at the rate we're spending, we can only float that sick new countrywide jetski for another 8 months or so. I guess we'll just raise the limit again when we need to bailout the next big bank.

Disclosure: None