Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Surge in Housing Supply Will Drive Down U.S. House Prices

Housing-Market / US Housing Sep 16, 2010 - 06:26 AM GMT

By: Mike_Whitney

Housing-Market

Best Financial Markets Analysis ArticleHome ownership has become an albatross. Prices are falling, demand is weak, foreclosures have skyrocketed, and inventory is backed up to the moon. If there's an upside, it's hard to see.

Everyone who bought a house in the last 6 or 7 years knows that he was fleeced by bankers who were pushing "fishwrap" mortgage paper to line their own pockets. Prices did not reflect the underlying supply/demand fundamentals as much as they exposed the massive mortgage laundering operation that was taking place in the shadow banking system. Hedge fund sharpies and other speculators walked away with billions while credulous homeowners were lashed to an anvil and tossed in the East River.


Now there are signs that the Fed teamed-up with the banks to get another pound of homeowners' flesh by keeping inventory off the market while they were exchanging $1.25 trillion in reserves for the banks non performing loans and mortgage-backed securities. Here's how it works: While the Fed was executing its "quantitative easing" (QE) program, the banks began to stockpile foreclosed homes to reduce supply and, thus, stabilize prices. It was all a hoax to conceal the transfer of reserves for garbage assets. Now that the banks are loaded with fresh reserves, they don't need to play-along anymore, which is why they've started dumping their massive backlog on the market. As inventory floods the market, housing prices will tumble and homeowners will take another pounding. Here's an excerpt from an article in the Wall Street Journal that helps to explain what's going on:

"The speed at which house prices fall over the next few months could depend less on mortgage rates and Americans' appetite for home buying than on how banks decide to manage the huge number of foreclosed homes they own or may take from delinquent borrowers in the near future.

Unlike home owners, banks often are much quicker to slash prices to unload properties quickly." ("Banks' Plans for Foreclosed Homes will drive the Market", Nick Timiraos, Wall Street Journal)

In truth, the only reason prices have stayed high is because of foot-dragging at the banks. If they released all of their inventory now, prices would plunge below their historic trend. As it stands, the deluge of foreclosed homes on the market are certain to put more pressure on today's prices. There's a good chance the market will overshoot to the downside leaving more homeowners drowning in red ink.

So, what are the banks really up to?

It looks to me like the banks have shored up their equity and capital enough that they feel they can clean up their books without going belly-up. And that means that you, dear homeowner, will be left in your two bedroom rambler in Riverside, watching the sunset on your retirement nest-egg.

Here's more from the WSJ:

"The Home Affordable Modification Program has fallen short of its goals. So far, fewer than 500,000 loans have been modified, below the target of three million to four million. Yet the program served as a “closet moratorium” on foreclosures that stanched the flow of bank-owned homes to the market, said Ronald Temple, portfolio manager at Lazard Asset Management."

Of course, the HAMP modification program failed. It was designed to fail. It was a stalling device like the other foreclosure moratoria. All of the subsidies, incentives and tax credits were designed to "run out the clock" while the banks offloaded their garbage onto the Fed's balance sheet. As soon as the stealth bailout ended, there was no longer any reason to continue the "prices have stabilized" charade. So, now the great housing inventory purge can resume with gusto.

 Servicers have already picked up the pace of foreclosures which will swell inventory and weaken demand.

More from the WSJ:

“We see the perfect storm brewing with rising supply and falling demand,” said Ivy Zelman, chief executive of research firm Zelman & Associates and one of the first to warn of trouble five years ago. She estimated that distressed sales could account for half of the market by year-end if traditional sales didn’t rebound…..

Analysts at Barclays Capital estimate that some four million loans are in some stage of foreclosure or are at least 90 days past due, down slightly from a January peak."

Homeowners have already seen prices plunge 30% from their bubble-highs in 2006. Now they stand to get clobbered again by an unexpected surge in supply. This is going to ruin a lot people's retirement plans. We're all a lot poorer than we thought, and the banks are determined to make us poorer still.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules