Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

The ‘Catastrophic Change’ in the U.S. Real Estate Market

Housing-Market / US Housing Sep 23, 2010 - 03:17 AM GMT

By: Barry_M_Ferguson

Housing-Market

Best Financial Markets Analysis ArticleWe learned today (9/22/10) from our illustrious US government that new housing starts jumped 10.5% in August. Don’t get exited. Almost all of the gain was from apartment construction. This month-over-month burst in activity is still 9% below last year’s level. Nevertheless, the recession has been declared dead, the stock market has appreciated every day since the conclusion of Bernanke’s August Jackson Hole, Wyoming meeting, and the government needs affirmation of both events. But like most people with a functioning brain cell, I have eyes and ears. Here are my observations on real estate from my little vantage point.


Two weeks ago, the largest private luxury home builder in our area (population of over one million in metro area) called it quits. The company specialized in houses costing a half million dollars on up. They said they would finish what they had started but expected to be out of business by the beginning of next year (2011). They have been in business for over 30 years. In 2006, the company won the ‘Builder of the Year’ award from Professional Builder magazine. In their statement, the company’s president said that real estate had experienced a “catastrophic change”. They went on to say “…that the real estate market has been and continues to be worse than any of us thought even remotely possible”. Cheer up, fellows! The recession is over and ‘recovery’ is here!

Okay, one builder does not make a trend. So this past week, there was an article in our local paper about a developer in my immediate proximity that is going before a local township to try and get a residential construction ordinance changed. The area under development requires builders to build all brick, large houses on at least one-half acre lots. There are only a few houses that have been built in this development over the past few years and the developer has had two of the three builders withdraw from the project. The developer says he has not so much as sold a single lot in the last 18 months. According to the developer, he needs the ordinance to be changed so he can build higher density housing with only brick facades. Or else, he faces foreclosure.

There is a development literally around the block from my residence that was originally deeded to about 36 lots 3 years ago. Each lot was at least one acre and each house would sell for at least a half-million. About six lots have been developed and one of the homes still stands vacant. No other lots are under development. To my knowledge, none of the other lots have even been sold.

Granted, I am sharing empirical evidence from my geographic area. However, our government is like a child molester and they are trying everything in their power to entice us into the back of their van so they can do God knows what to us. They will tell us anything. They will tempt us with all kinds of candy. It is time we all use our common sense and deductive logic powered by observation. From where I sit, real estate is in a depression and it’s getting worse by the month. Sadly, I see nothing on the horizon that will help real estate for the next generation. Why does it matter? Because, the US is a FIRE economy.

The acronym FIRE stands for ‘Finance, Insurance, Real Estate’. By BEA stats, this is over one-third of the US GDP. If real estate is in a depression, we must acknowledge that finance and insurance can’t be far behind as real estate stokes both finance and insurance. The result is sobering.

Housing valuation is a large percentage of what we call ‘net worth’. The ‘catastrophic change’ in real estate has shaved about $11 trillion from America’s net worth over the past two years. If you want the numbers, net worth peaked in 2007 at $64 trillion, fell to $48 trillion in 2009, and bounced back to $53 trillion in 2010. (Yes, I am rounding by ‘insignificant hundred billions.) And we are told, ‘recovery’ is at hand? Let’s look at how the con game is played.

This past week, two statistics from the second quarter of 2010 caught my distrustful eye. One, household net worth fell 2.8%. Two, household debt fell a record 2.3% - the 9th straight decline. The falling net worth is alarming but we are supposed to believe that Americans are getting their financial house in order by cutting back debt. Net worth fell 2.8% but not to worry – household debt fell an almost equal percentage of 2.3%. Things are getting better. Or, are they? The government and the media want us to believe! The media is stupid, ignorant, incompetent, and completely bought and controlled by the illuminati that runs the show. Let’s look closely at the numbers.

Household debt. According to the Federal Reserve Board, household debt equals $13.5 trillion dollars and it decreased by 2.3% in Q2. So household debt fell $310 billion ($13.5 trillion times 1.023% minus $13.5 trillion) The FDIC says banks wrote off more than $49 billion in loans in the second quarter. Most major banks report writing off close to 10% of delinquent credit card debt. According to the Federal Reserve's G.19 report on consumer credit, March 2010, total credit card debt was $852.6 billion. 10% of that would be $85.3 billion (I am rounding by hundred millions.) I think it would be safe to assume, therefore, that some of the cash for clunkers and cash for washer/ dryers has also resulted in credit write offs. So, even as the government likes to portray the decline in consumer debt as a positive, most certainly it is due mostly to charge offs from the credit issuers. And, there is more in the pipeline. According to Fitch Ratings (April, 2010), the credit card delinquency rate was 4.27%. Foreclosures are widely expected to exceed one million this year.

Net worth. According to the Federal Reserve Board, household net worth is $53.5 trillion dollars. That 2.8% decline amounts to $1.5 trillion. Thus we have the old misdirection trick. The percentages are misleading in that debt is falling but so is net worth. Only in this case, consumers have cut credit by $310 billion while they have lost net worth of $1.5 trillion. In truth, consumer debt is actually increasing as a percentage of net worth! Surely the debt reduction can be tied to an increase in bankruptcies. According to Realtytrac, August 2010 foreclosures were up 4% from July. 1 in 381 home owners received a foreclosure notice in August. There are now some 7 million homes in the US either currently vacant or under foreclosure. In June, 2010, mortgage debt (from Fed data) was $14.1 trillion. We know from current statistics that at least 10% or more of mortgages are either delinquent or in foreclosure. A statistical continuation would mean that another $1.4 trillion of net worth will be imperiled next year due to the catastrophic change in real estate.

The government’s response has been to try and manipulate the real estate market higher. They can’t bring the con game to a conclusion so they are now trying to extend it. So, they managed to instigate a slight uptick in the second quarter home sales with a tax credit to buyers. The first time home buyer tax credit may have suckered in buyers, but like most government orchestrated programs, it too was a scam. To qualify, a buyer could only have an income of less than $125,000 (ratcheted up from $75,000). The credit was 10% the value of the purchase up to $8,000. So, if a buyer bought an average priced house of $184,000, they would be eligible to claim the $8,000. That amounts to a 4% refund. However, if the home purchased in, say April, were to lose 4.5% of its value in the coming months, the proud deal-making homeowner will suffer a loss even including the tax credit. In fact, this is happening around the country as the government continues to swindle the populace in real estate deals. To that point, a story from Tampa, Florida said the $8,000 tax credit allowed sellers to raise prices that are now down $15,000 on average. According to Zillow.com, the average home price at the end of September, 2010 was $184,000 – down .5% from August. If you are interested, the average foreclosure price was $154,000. Some would even argue for more tax credits and an extension of the program. Thank you, Sir! May I have another!   

Why does the government feel so compelled to intervene and manipulate? The ultimate answer is they need to prop up the economy to drive tax revenues to support interest coupons on the Treasury debt that justify the credit default swaps that allow for the perpetuation of the sovereign debt growth trend. In other words, we are broke but we can stave off the repo man for a few more quarters with some trickery. We do know that the home buyer tax credits pushed up real estate sales and prices temporarily for the second quarter. In fact, the decrease in net worth was due to a decline in stocks and mutual funds to the tune of $1.9 trillion in Q2 2010. The Fed puts the value of stocks and mutual funds at $14.9 trillion.

Given the catastrophic change in real estate, doesn’t it make sense that the trend will continue? Doesn’t it also make sense that the Fed emerged from their Jackson Hole meeting at the beginning of September with a buy strategy meant to drive the stock and mutual fund world higher? A trillion dollar hit to real estate can be offset with a trillion dollar rise in stocks. Let’s see. A 10% rise in a $14.9 trillion dollar pool of stocks and mutual funds would be about $1.5 trillion dollars. Since the Dow was at 10,000 when Bernanke parted Jackson Hole, it is now up over 7% in 14 trading days in statistically the worst stock performance month of the year. Third quarter is almost over and our hero Ben doesn’t want anybody worried about their dwindling net worth when their statements arrive. At least, not when he can jack the stock market up as an offset. Besides, that will take our minds off the catastrophic change in real estate.  

I’m not a real estate expert. I’m just a guy with a calculator and a thirst for truth.

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory
barry@bmfinvest.com
www.bmfinvest.com
www.bmfinvest.blogspot.com

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

© 2010 Copyright © 2010 Copyright BMF Investments, Inc. - All Rights Reserved
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

signal7
23 Sep 10, 11:24
Interesting interpretation, but I disagree

With regards to your statement: "...that amounts to a 4% refund. However, if the home purchased in, say April, were to lose 4.5% of its value in the coming months, the proud deal-making homeowner will suffer a loss even including the tax credit."

This ignores the fact that no one in their right mind would purchase a home and then try to sell it only 6 months later. The valuation of a home is fluid and changes with respect to the market. The only way the first time home buyer program was a bad deal for the prospective home buyer is if their house loses your 4% of value *permanently*. Whether that happens or not will be determined by what part of the country you live in, the condition in which you maintain the home, and changes in the market. In short, it's not nearly as clear cut as you're portraying it.


Post Comment

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

6 Critical Money Making Rules