Keeping the Housing Bubble Inflated

It should be abundantly clear and obvious that thegovernment and Wall Street want nothing more than to keep home prices inflated and are sticking out a giant middle finger to the majority of Americans.

You might have missed the glorious news that our stunningly cunning Senate decided to reinstate the heightened loan limits for Fannie Mae, Freddie Mac, and the FHA (aka the entire stinking mortgage market).  Of course the lobbying arms of the housing industry went gaga for this policy even though it keeps prices further inflated in bubble states like California and New York.  Good job politicians, I’m sure the checks from the FIRE industry will come in just in time for the 2012 election!

Since our politicians care so deeply about working Americans, they are also examining a push at giving residential visas to foreigners looking to buy at least $500,000 in real estate.  Forget about the fact that the median home in the U.S. costs more like $170,000 to $180,000.  Then we have the Federal Reserve artificially keeping mortgage rates at historic lows and you hit the trifecta of housing welfare for expensive bubble ridden states while the overall economy falters.

Continue reading “Keeping the Housing Bubble Inflated”

A Housing Apocalypse is Coming

A Housing Apocapyse is Coming

Source:  Dr. Housing Bubble

There will be no sustainable housing recovery until the shadow inventory is cleared out.  As of April with the latest data close to 6.4 million loans are delinquent or in foreclosure.  This is a massive number of homes.  What is downright disturbing of the 2.2 million homes in foreclosure you have 675,000 homes (31 percent of the pool) that have not made a payment in over two years.  That is right, two full years.  Apparently one-third of the bank’s strategy in dealing with foreclosures is simply to ignore missed payments.  Glad it took them giant bailouts and four years to figure that one out.  The housing crisis strategy is really a banking-centric one and that is why nothing has really been resolved since the crisis started.  Banks are dictating the movement going forward so the idea of keeping prices inflated is simply one to protect banking interests.  Since the market has very little desire for inflated real estate, banks just slip it under the rug for another day.  Keep in mind that many Americans are seeing lower wages so lower home prices are actually good for their bottom line since it eats away less of their hard earned income.  Plus, one-third own their home outright and another 30 percent rent.  So this idea of keeping home prices high just for the sake of keeping them high is a ploy that comes out of the suspension of mark-to-market logic.  Do people finally get that home prices have to fall to reflect local area incomes?

The state of distress in U.S. housing

First, it is probably useful to get a sense of the entire potential shadow inventory out in the market:

us home foreclosures

Source:  Calculated Risk

According to CR we have the following:

-2.24 million loans less than 90 days delinquent.
-1.96 million loans 90+ days delinquent.
-2.18 million loans in foreclosure process.

-For a total of 6.39 million loans delinquent or in foreclosure in April.

That is a large number of homes.  Now keep in mind many foreclosures are now starting to make their way onto the MLS since banks are actually taking full possession of the homes (although the reality that 675,000 people have not made a single payment in two years tells you where things stand).  Think about the above data; you have roughly 600,000 to 800,000 as current REOs (all the way through the foreclosure process) but you also have 675,000+ people in foreclosure who haven’t made a payment in two years:

loans in foreclosure

I’ve seen some pundits argue that many of these loans will cure.  We know for a hardcore fact that if you are behind on your payments for two years it is likely that your home is going to move from the shadow inventory into the REO pipeline.  This also doesn’t examine the fact that we have close to 2.2 million homes in foreclosure.  How many have made no payment in one year?  Keep in mind we are only looking at the foreclosure category so far.  So the entire U.S. banking system is being overwhelmed with 600,000 to 800,000 active REOs yet we have that many in foreclosure without two years of payments.  Here is a good estimate of REO data in the U.S.

LawlerSelectedREO

Source:  Tom Lawler via Calcualted Risk

The above doesn’t cover the entire universe of REOs but does a good job.  I went ahead and took a quick look at active foreclosures in the state of California and found the following:

calif foreclosures

calif foreclosures2

Depending on what data source you look at California has roughly 80,000 to 89,000 homes that are REOs and ready for sale.  That still leaves another 600,000 to 700,000 REOs across the country that need to be sold.  You also have to wonder of the 675,000 foreclosures with two years of missed payments how many are in massively overpriced bubble states like California or New York?  Well I can tell you that California currently has 157,000 homes in the foreclosure process that have yet to go REO.  The bottom line is you have a massive pipeline of distressed properties waiting to make their entrance on the MLS stage.

And the foreclosures will work through the system like a rabbit filtering through a python.  We have another 4.2 million homes delinquent where the foreclosure process hasn’t even started (1.96 million of the loans 90+ days late).  Don’t fool yourself because many of these will end up as REOs at some point (could be years down the road given the absurd timeline we are experiencing).  It can’t be stated enough that keeping the process slow and providing banks with trillions of dollars of bailout money is simply a method of clogging the financial pipes so the FIRE economy can figure out what other sector to gut and inflate into a bubble.  In the end it is the taxpayer that will foot the bill unless something radical changes.

I wanted to draw the current distress universe to show how little of the shadow inventory is being shown to the public:

foreclosures q2 2011

The bars are drawn to scale to show actual magnitude relative to other buckets.  The only homes the public is viewing are those in the purple box above.  But look at what we have coming down the pipeline.  Things don’t seem to be changing so it is looking more and more likely that we will witness a Japan like real estate market with zombie banks walking the Earth in search of easy capital brains.

It is extremely troubling that we have so much money being lobbed at the banks with such horrible results.  But what do you expect?  Someone was going to pay for this decade long orgy in real estate.  As it turns out it is the prudent public and middle class.  The people living rent free are simply the other side of the coin to the morally bankrupt financial sector.  We have to go back to watching archived films to remember a time when banking and finance actually carried a positive connotation.

I’m curious to know how many people are living in million dollar homes rent free.  We’ve seen homes in foreclosure in Beverly Hills so it is certainly happening and readers have sent over confirmation of this in their own neighborhoods.  Talk about a giant mess.  The New York Times had an interesting graph showing how long it would take to move 872,000 foreclosures:

timeline to clear foreclosures

Source:  New York Times

It would take roughly 40 months to clear the current foreclosure inventory (aka the tiny blue rectangle in our earlier chart).  And more will be coming into the pipeline but banks are trying to make their speculative gains in other bubbles to soften the blow here.  After all, they wouldn’t want to spoil the trillions in loot they have stolen from Americans.

California Mortgage Defaults Rise In Third Quarter

This graph shows the Notices of Default (NOD) by year through 2009, and for the first three quarters of 2010, in California from DataQuick.

Although the pace of filings has slowed from the previous two years, it is still very high by historical standards.

From DataQuick: California Mortgage Defaults Rise in Third Quarter

The number of foreclosure proceedings initiated by lenders between July and September edged higher on a quarter-to-quarter basis for the first time since early last year. But the number of home owners who went all the way through that process to foreclosure dipped from the previous quarter and a year ago, a real estate information service reported.

A total of 83,261 Notices of Default (“NODs”) were recorded at county recorder offices during the July-through-September period. That was up 18.9 percent from 70,051 in the prior quarter, and down 25.5 percent from 111,689 in third-quarter 2009, according to San Diego-based MDA DataQuick.

“Over the past year, with some minor ups and downs, financial institutions and their servicers have been processing a fairly steady number of defaults each quarter. That probably has more to do with their capacity to process defaults, than with higher or lower levels of incoming distress,” said John Walsh, DataQuick president.

The number of Trustees Deeds (“TDs”) recorded, which reflects the number of houses and condos foreclosed on, totaled 45,377 during the third quarter. That was down 4.8 percent from 47,669 for the prior quarter, and down 9.3 percent from 50,013 for third-quarter 2009. The all-time peak for TDs was 79,511 in third-quarter 2008.

As prices fall later this year, we might see another increase in NODs. Although NODs will decline in 2010 from 2009, the number will still be very high and 2010 will be the third highest on record (only behind 2009 and 2008).

There are many details in the press release – the median origination month was August 2006, Countrywide made the most bad loans (no surprise), and the top beneficiaries were Bank of America (15,992), Wells Fargo (10,069), MERS (5,292), and JP Morgan Chase (5,172).

It will be interesting to see what happens in Q4. Since this is the first stage of the foreclosure process, and almost all foreclosures in California are non-judicial, I’d expect little or no impact from “foreclosure-gate”.

US Real Estate Market Update from Keller Williams

Commentary:

The economic recovery continues to slowly but steadily deepen its roots.  Consumer sentiment ticked up in March and it appears businesses are feeling more positive as well. According to a CEO Economic Outlook Survey, America’s top CEOs are expecting an increase in sales, along with increased or stabilized capital spending and employment.

Over the past several months, the hot topic of health care reform took much of Congress’s attention.  Now, with the bill passed into law, the government is turning its attention to other matters to help bolster the economy including the job bill and financial reform.

High unemployment and elevated levels of foreclosures and distressed homeowners continue to be two of the biggest factors in preventing a robust recovery.  The government’s attentive attitude toward these obstacles is seen as a positive sign by industry and economic experts.

Existing Home Sales:

Existing home sales softened in February. According to Lawrence Yun, NAR chief economist, the widespread winter storms during the month may have masked underlying demand as “buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity.” February sales of 5.02 million remained 7 percent above the 4.69 million-units last year.

Median Home Price:

The median price for an existing home was $165,100 in February, a 1.8 percent drop from February 2009. Distressed homes, which accounted for 35 percent of sales last month, continued to skew prices downward as they typically were discounted in comparison with non-distressed homes. Continue reading “US Real Estate Market Update from Keller Williams”

Long-Term Residential Mortgage Rates Rise to Over 5%

Freddie Mac recently released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.05% with an average 0.7 point for the week ending February 25, 2010, up from last week when it averaged 4.93%. Last year at this time, the 30-year FRM averaged 5.07%.

The 15-year FRM this week averaged 4.40% with an average 0.7 point, up from last week when it averaged 4.33%. A year ago at this time, the 15-year FRM averaged 4.68%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.16% this week, with an average 0.6 point, up from last week when it averaged 4.12%. A year ago, the 5-year ARM averaged 5.06%.

The 1-year Treasury-indexed ARM averaged 4.15% this week with an average 0.6 point, down from last week when it averaged 4.23%. At this time last year, the 1-year ARM averaged 4.81%.

“Interest rates for 30-year fixed mortgages followed long-term bond yields higher and rose above 5% this week amid a mixed set of economic data reports” said Frank Nothaft, Freddie Mac vice president and chief economist. “For instance, the January producer price index jumped well above the market consensus, but the consumer price index remained subdued and consumer confidence declined to the lowest level since April 2009, according to the Conference Board.

“There were also varying reports as to the current state of the housing market. The S&P/Case-Shiller national home price index rose for the third consecutive quarter in the fourth quarter, albeit at a slower rate, and the 20-city composite index showed an increase in December 2009 for the seventh month in a row; six metropolitan areas experienced positive year-over-year growth, compared to four in November. New home sales, however, unexpectedly slowed in January to the smallest pace since records began in 1963, and the supply of homes at the current sales rate rose to 9.1 months, the most since May 2009.”

For more information, visit www.freddiemac.com.