HOUSING MARKET IS DONE
Housing Recovery is Here
By Ian Cooper, Saturday, September 25th, 2010
More than 70% of Americans think now is a good time to buy a home, according to a Fannie Mae survey. And 78% believe home prices have either bottomed, or will rise next year.
What are they thinking? Better yet, what are they drinking?
Sure, home prices recovered over the last year… But that was thanks to an artificial stimulus known as “the home buyer tax credit.” Plus, home prices were recovering from a boost in confidence, as foreclosure numbers dropped.
But let’s not be naïve here. Foreclosures only dropped because banks delayed the foreclosure process.
I don’t want to hear that defaults are down 30%. It only happened because banks weren’t sending out the notices of default, which they did to keep housing prices afloat.
Fact is, three long years and millions of foreclosed homes later, there’s still a wave of foreclosures headed our way – just as we’ve been warning readers about since the early days of 2007.
We’re nowhere near the end of a crisis that could cost us $1.5 trillion. Thinking we’ve bottomed is like thinking you’d survive a nuclear blast.
We’ve gone from one asset bubble, in which the Fed warned about irrational exuberance but did nothing… to another bubble (credit and housing), in which the Fed was implicit by keeping rates far too low for too long without regulation… to where we are now, witnessing the Fed blowing up yet another bubble.
It’s pathetic.
Anyone that tells you housing has bottomed shouldn’t be giving investment advice. Period. People are still losing their jobs. Resets haven’t finished.
Foreclosures will mount even more than they already have.
Without the home buyer tax credit, the government can’t prop up imaginary housing numbers any longer.
More than 25% of homeowners owe more than their homes are worth. This could result in more strategic defaults, which in turn will drive up foreclosure rates even more.
There is a tremendous amount of inventory on the market, and this will only grow as homeowners fail to pay their mortgages.
With banks reeling from all the bad paper their holding, they’re not very motivated to lend money to people that could screw them later.
So what incentive is there to buy a house?
We still have these pesky resets that will hit very hard – and drop values further.
There are two more waves of resets on more than $1 trillion worth of Alt-A and Option ARM borrowers, many of which could easily face foreclosure.
Another 2.7 million delinquencies and foreclosures haven’t reached the market yet. U.S. home builders aren’t confident. And there’s a great possibility of another two million strategic defaults.
It’s ugly out there, folks… real ugly.
Given all the weakness in the economy and the glut of homes, it will take years to absorb millions of empty homes – a sobering thought when you account for worsening employment.
Housing is not bottoming out, as Wall Street would have many believe.
