Thursday, July 26, 2012

Housing Market: Geronimo!

It's been a while since an economic post, and the data points we keep seeing are too tempting to pass up a comment now. At this point, it doesn't look like the US is in a recovery by any measure. What we are at the end of is a monstrous debt cycle that has been perpetrated over the last 40 years (yes, this is bi-partisan clusterf**k). It started with Nixon flushing Breton Woods down the toilet and closing the gold window. Every year/administration since, we have been consistently devaluing our currency and engaging in an orgy of massive borrowing in the private and public sectors.

This has many implications for all of us. The housing market is one that hits the hardest for most. Take it on fact, not faith, that the housing market is getting ready to go into collapse mode again and that the "tight inventory" argument being put forth by utterly biased frauds like the National Association of Realtors is total BS.

Traveling through the country, I take a great interest in real estate listings. The listings that are in short sale, foreclosure or just hundreds of days on market are growing. As an example, from a New Jersey newspaper: "The long-expected second wave of foreclosures in states where courts delayed their processing appears to have begun in New Jersey and area counties, with filings jumping in the second quarter from a year ago.LINK

Then this morning Bloomberg reported this:  "Foreclosure filings rose in almost 60 percent of large U.S. cities in the first half of 2012, indicating many areas will have more distressed homes on the market later this year, RealtyTrac Inc. reported." LINK

THEN, the National Association of Realtors reported that pending sales for June dropped 1.4% unexpectedly in June.  A .9% increase was forecast by Wall Street's Einsteins. Even more significant - and reinforcing a serial of downwardly revising previously reported data - the NAR downwardly revised the pending homes sales number for May.  Here's a LINK.  The disturbing reality is that this is the seasonal time of year that the housing market is supposed to be at its relative healthiest.  In fact, the NAR data is seasonally adjusted - imagine how ugly the raw data must be.

The NAR's excuse for the drop in pending home sales is "tight inventory."  But we know that's a bunch of BS.  Short-sales are failing to close en masse.  I personally know (and you may too) someone who was sitting in a house with a defaulted mortgage waiting for a short sale to close that failed because the financing fell through.  Furthermore, a lot of the bank-owned inventory was shifted to Fannie Mae and Freddie Mac, who then off-loaded it onto investors in big blocks through a sale-to-rent program initiated by the Obama Administration.  The rental inventory is going to balloon back up, including many apartment buildings that have been started and which have caused the building starts statistic to bounce over the past year.  Rental prices for homes in many parts of the country have softened up from this past winter.  I wonder why?

As the rental inventory expands and drives rents lower, it will also drive home values lower.  This process will be exacerbated by this coming second wave of en masse foreclosures.  I'm not the only one who perceives this insidious negative feedback cycle starting back up. For every area of the markets, I have certain analysts to whom I pay attention, mostly to confirm my own thinking or gain new insight. Mark Hanson is the guy worth paying attention to for housing market analysis. Here is a link to some of his analysis, and it's worth reading. LINK

If you are thinking about buying a house because your realtor is telling you that the market is tight and prices are going higher, don't do it.  If you are thinking about selling your house to capture remaining equity value, get it done as soon as possible.  This fall/winter could be very ugly, and not just for the housing market...


  1. There are lots of internet sites that post about the inevitable crash of the economy around the world. Rather than repeating all that, John Michael Green writes some very cogent articles on many facets about how the world got this way. Some great abbreviated history is included to support his essays.

    1. I'm pretty sure you mean John Michael Greer. I have read his stuff and agree with most of it. I think he is much more philosophical than I am. It must be the whole druid thing. :-)

      There's not enough space or time for me to go into why/when economies around the world will come to the end of their collective ropes. Every once in a while I hear the monkeys on CNBC or elsewhere spouting opinions that lack common sense and defy mathematical reality...and it makes me want to rant a little on this blog.

  2. Sorry about the typo... We know the economies will collapse. We know why. The one thing we don't know is when. The question unknown is when will that last grain of sand cause the landslide of the economy. And the economy will collapse -- individually or all around the world like a house of cards.

    Better to rant here. No doubt Susan has heard it before. Ranting to the dogs just make them cock their heads at your rant and wonder what your problem might be and -- oh -- when is dinner. Dogs live in the moment. Makes life a whole lot easier.

  3. If you ever want to borrow one of our dogs for a while, let me know!