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France To Buy 30,000 Homes, How Many Will the U.S. Own?

Housing-Market / US Housing Oct 05, 2008 - 01:20 PM GMT

By: Mike_Shedlock

Housing-Market

Best Financial Markets Analysis ArticleMorningstar is reporting, France To Buy 30,000 Planned Homes To Boost Building Business .

President Nicolas Sarkozy, grappling with the global financial crisis, has decided to directly support the French construction industry by buying 30,000 homes waiting to be built, the presidential palace said Wednesday.


"So that current property programs can be successfully concluded, the president...has decided to intervene directly, ordering the purchase at discounted prices of houses on which building work has not yet begun," a statement said.

This move will initially cover 30,000 homes, and by ensuring that they will be built, the decision will support the homebuilding industry, it said.

France Half Way To Pure Keynesian Insanity

France is halfway towards implementing the ridiculous Keynesian idea of Bill Gross who stated "One of the wisest men I know has this serious but admittedly impractical solution: have the government buy one million new/unoccupied homes, blow them up, and then start all over again."

See Bill Gross Wants Treasury To Buy Assets To Prevent Tsunami for more abject silliness from Bill Gross.

$700 Billion Bailout Ramifications

Even though the U.S. government has no plans to buy homes, it is going to end up owning hundreds of thousands if not millions of them via foreclosure processes.

Specifics of the bailout bill allow Paulson to buy whatever he damn well pleases at whatever price he wants. The Treasury is going to start buying toxic mortgages, people will continue to walk, and the government will end up owning those houses.

Homes in foreclosure process set another record

MarketWatch is reporting Homes in foreclosure process set another record .

Sept. 5, 2008 The rate of mortgages entering foreclosure hit another record high in the second quarter, as did the percentage of loans somewhere in the foreclosure process, the Mortgage Bankers Association reported on Friday.

The delinquency rate, a measure of mortgages with at least one overdue payment but aren't in foreclosure, also was the highest ever recorded in the 39-year history of the MBA's quarterly survey.

Increases in foreclosures seen in California and Florida overshadow improvements seen in states including Texas, Massachusetts and Maryland, he said.
Only eight states -- Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio -- had rates of foreclosure starts that were above the national average, Brinkmann said in a telephone interview. That "is an indicator that this is not equally distributed across the country," he said.

California and Florida alone accounted for 39% of all of the foreclosures started nationally during the second quarter. Together, the two states made up 73% of the increase in foreclosures between the first and second quarters, according to the MBA.

"The worst states are getting worse," Brinkmann said, noting that overbuilding occurred in California and Florida, and their numbers will continue to drive the national ones. Those states, he added, also are the two with the most mortgage loans outstanding.

Altogether, more than 9% of mortgage loans are either delinquent or somewhere in the foreclosure process, Brinkmann said.

The percentage of loans that went into foreclosure in the second quarter was 1.08%, up from 1.01% in the first quarter and 0.59% a year ago. Meanwhile, 2.75% of loans in the survey were somewhere in the foreclosure process, up from 2.47% last quarter and 1.4% in the second quarter of 2007.

The delinquency rate was 6.41% of all loans outstanding, according to the survey. The rate was 6.35% in the first quarter, and 5.12% a year ago.

But Brinkmann pointed out that the overall delinquency rate was driven by loans that were 90 days or more past due -- and by those that were in California and Florida. The 30-day delinquency rate was below levels seen in 2002, he said.

The delinquency breakdown supports the argument that the foreclosures are being driven by housing fundamentals as opposed to economic issues such as job losses, he said. Drops in home prices seem to be driving the transition between a loan that is delinquent and one that goes into the foreclosure process.

The survey covers 45 million loans on one to four unit residential properties, representing between 80 to 85% of all first-lien residential mortgage loans outstanding in the country. Loans in the survey were reported by about 120 lenders.

Foreclosure Math

There are 45 million homes in the survey. 9% of them are either delinquent or somewhere in the foreclosure process. That means 4 million homes are at serious risk of foreclosure. 2.7% (1.2 million homes) are already in some state of foreclosure.

The cure rate will be non zero. However, the survey itself represented 80 to 85% of all first-lien residential mortgage loans so the actual numbers currently in foreclosure and at risk of foreclosure are higher.

What About Jobs?


Based on 90 day delinquencies vs. 30 day, Brinkman concludes "foreclosures are being driven by housing fundamentals as opposed to economic issues such as job losses." That is an interesting line of thought so let's explore jobs for a bit and see where that takes us.

Jobs Contract Nine Consecutive Months

We are in the midst of Nine Consecutive Months of Jobs Contraction . Another 159,000 workers join the ranks of the unemployed in September. Every one of them who owns a home is at risk of losing it. Worse yet, the jobs picture is going to be bleak for at least another year, and probably more than that. There is every reason to expect the absolute worst given this was the biggest credit bubble in history.

Assuming future job losses total 1.5-2.5 million over the next 18 months or so, that is hundreds of thousands of more possible foreclosures.

Furthermore, there was no money allocated in the bill for foreclosure prevention only an agreement for the Treasury to rework loans. The only loans it can rework are from mortgages the Treasury buys. And if the Treasury puts more than some small token amount towards loans I will be surprised.

Adding it all up there is likely to be another 2.5 million foreclosures and probably more like 3 million coming down the pike. 4 million or more would not be a shock. Many of those foreclosed homes are going to end up in the hands of Uncle Sam at an unspecified cost to dispose of. That is another direct consequence of the $700 billion bailout package and it is not priced into the deal.

No one bothered to tell the tax payer what was coming down the tracks. Instead, we heard fantasy land talk that the government (taxpayer) would make a profit on this somehow. Open your pocketbook because this boondoggle is the first or many to come.

For additional analysis of the bailout from an inflation-deflation perspective, please see Bailout Bill Passed, So What Happens Now?

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

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