Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Gerald Celente: Why You Still Need Guns, Gold, and a Getaway Plan... - 23rd Jun 18
Cheap Gold Stocks Bottom Basing - 23rd Jun 18
A Trade War Won’t Be Good for the US Dollar - 23rd Jun 18
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Economic Depression in America: U.S. Housing Markets Double Dip

Housing-Market / US Housing Mar 27, 2011 - 07:59 AM GMT

By: Mike_Whitney

Housing-Market

The housing market is now in full retreat. This week, the Commerce Department reported that sales of new homes plunged nearly 17 percent in February to a 250,000 annual pace. That's a record low. At the same time, the median price fell 8.9 percent from February of last year. The news comes on the heels of Monday's equally-dismal report that showed existing home sales dropped 9.6 percent in February. These are Depression era stats and builders know it which is why they're unloading homes as cheaply as possible. It's been 5 years since housing prices peaked in July 2006, and the market is still nowhere near the bottom. In fact, the rate of decline is accelerating. This is shaping up to be the worst spring in history.


If you want to know where the housing market is headed, keep an eye on inventory. That's the whole ball of wax. When inventory balloons, prices go down. At present, inventory is rising (8.9 month's supply) which means that prices have further to fall. But these figures don't include the vast shadow inventory that the banks are holding off-market. Many analysts think there could be another 5 to 6 years of inventory stacked up on bank's balance sheets. The Wall Street Journal's Mark Whitehouse takes an even grimmer view. He thinks the backlog could be in the vicinity of 9 years. Here's a clip from his article in the WSJ:

"Banks' vast pile of foreclosed homes doesn't appear to be diminishing. That's a troubling sign for the future of the housing market.

Back in April, this column tallied up all the foreclosed homes sitting in banks' inventory, as well as the "shadow" inventory of homes in the foreclosure process or on which owners had missed at least two mortgage payments. At the time, we reported that at the current rate of sales, it would take 103 months to unload it all.

Over the past six months, that number has actually risen. Banks managed to pare down the shadow inventory, but largely by taking possession of foreclosed homes. As of September, they owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. Grand total: 107 months of inventory.

The numbers aren't exactly comparable to the April analysis, as the providers of data have changed. The inventory data now come from RealtyTrac, the shadow inventory data from LPS Applied Analytics, and the sales data from Core Logic. But no matter how you slice it, the housing market faces almost nine years of foreclosure hangover…..

The mountain of foreclosed homes casts a long shadow." ("Number of the Week: 107 Months to Clear Banks' Housing Backlog", Mark Whitehouse, Wall Street Journal)

If this glut of homes was suddenly dumped onto the market, prices would go into freefall and the banks would be swallowed up by the red ink. That would force the Fed would to initiate another bailout. (which Bernanke definitely does not want) So the banks are releasing homes in dribs and drabs while concealing the number of non-performing loans they're holding from shareholders. It's all a giant coverup.

This is from Bloomberg:

"The number of homes in foreclosure rose to a record 2.2 million in January, according to Lender Processing Services Inc. in Jacksonville, Florida. About 23 percent of homeowners with mortgages had negative equity in the fourth quarter, meaning their home-loan balances were higher than the value of their properties, CoreLogic Inc. said in a March 8 report."

Prices are falling, home equity is drying up, foreclosures are at record highs, and the incentive to "walk away" and let the bank take the mortgage-loss has never been greater. All of the mortgage modification programs have been a total failure. The Fed purchased $1.7 trillion of garbage mortgage-backed securities (MBS) from the banks, but hasn't lifted a finger to help homeowners. All of the pain from the $8 trillion housing bubble has all been shunted onto the backs of ordinary working people.

Present policy continues the same pattern of relentless class warfare. Since Bernanke announced his bond purchasing program (QE2) in November, the Fed has bought $440 billion of US Treasuries notes from the banks. This has pushed equities up nearly 15 percent which (according to the Fed's flow of funds report) makes it look like consumers are rebounding from the deep losses they experienced during the financial crisis. But the figures are misleading. The wealthiest 5 percent of Americans control more than half of all the nation's financial assets whereas the bottom 50 percent have almost none. So the uptick in stocks doesn't improve their situation nearly as much as a boost in home values. When housing prices go up, homeowners are more apt to spend which increases economic activity and stimulates growth. The New York Fed just released a working paper last week which showed that "Between 2000 and 2007, consumer borrowing added an annual average of about $330 billion to the cash they could spend; by 2009, consumers were diverting $150 billion away from potential spending in order to reduce the debts they had built up. This represents a remarkable $480 billion reversal in cash flow in just two years." (NY Fed)

So housing prices are critical to getting the economy back on track. But in a time when all the gains in productivity are upwardly-transferred to management, workers are more dependent than ever on rising asset values in order to increase their consumption. That's why consumer spending will stay flat until housing prices go up.

Obama's unwillingness to seriously address the housing crisis has extended the period of household deleveraging and added to economic sluggishness. He needs to force the banks to negotiate cramdowns (principle reduction) and keep more people in their homes. That's Job#1. Then he needs to boost fiscal stimulus to lower unemployment and increase demand for housing. The Fed's quantitative easing (QE2) can't fix this problem. It can buoy stocks and lower long-term interest rates, but it can't create jobs, patch household balance sheets, or stabilize housing prices. This week's plunging new home sales proves that Bernanke's strategy is a flop. It's time to move on to Plan B.

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.

© 2011 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