Tuesday, April 27, 2010

Housing Round #2

The Housing Crash Has Just Started
Get set for falling prices again. Round two is about to begin.

If you think home prices have hit bottom and are now headed back up for good, don’t look down now. The ground is about to be pulled out from underneath your feet. Think Wile E. Coyote spinning his legs over thin air as he runs off the cliff.
Lender Processing Services just released a report that said mortgage delinquencies have reached record highs again. A whopping 10.2 percent of all mortgages in America are delinquent—and the percentage is still growing. Add in homes that are in some stage of foreclosure and the rate for non-current mortgages rises to an astounding 13.5 percent—that is approaching one in seven mortgages.
All told, approximately 8 million homeowners are currently behind on their payments.
And that is not all. In February the total number of foreclosures jumped by 51.1 percent over February 2009 levels—which seems to indicate that banks are finally starting to face the music and starting to repossess homes.
According to Mike Whitney, writing for the Market Oracle, “banks have been withholding supply to keep prices artificially high.” During the banking panic in 2008 and 2009, banks did not want to foreclose on homes because it would have pushed prices lower, and that would have affected the value of banks’ mortgage-backed security bonds—causing the banks more trouble at a time when many big banks were collapsing. The government too wanted to stop foreclosures, for political reasons, so a moratorium on foreclosures was adopted.
That moratorium ended on March 31, and now that the banks are stuffed with reserves (due to the bank bailout program), “there’s no need to continue the charade,” says Whitney. “So the dumping of backlog homes has begun.”
And the house dumping could turn into a flood.
On March 29, the Irvine Housing Blog reported that Bank of America was set to increase its monthly foreclosures from 7,500 per month to 45,000 per month—a 600 percent increase. At this rate, Bank of America will foreclose on 540,000 homes over the next year. Other banks are set to follow suit.
“It’s a disaster,” says Whitney. It will affect everything from consumer spending to state revenues. And Whitney did not mention a national unemployment rate still above 17.5 percent, or the 20 million vacant homes currently saturating the housing market.
Here is the reality facing America: In the run-up to peak housing in 2007, upward of 40 percent of all job creation, by some estimates, within the U.S. economy was related to the housing market (builders, suppliers, real-estate agents, brokers, bankers, etc.). Those jobs are now gone, and unless housing prices not only stop falling but start rising, the jobs won’t be coming back again. But here is the catch. Before the housing market can sustainably regain its health, and before consumers can start responsibly spending again, housing prices have to be at a point where regular people can afford them.
That means housing prices still need to fall. All those housing-related jobs could be gone for longer than most people anticipate.
If you are hoping for a meaningful recovery in the housing market, and the economy in general, Wile E. Coyote, super genius, offers some pertinent advice: Look out below.

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