Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Home Owners Drowning in the American Dream

Housing-Market / US Housing May 21, 2014 - 12:58 PM GMT

By: Raul_I_Meijer

Housing-Market

According to a new Zillow report, 40% of all US mortgage holders can’t afford to sell their homes. That is 20 million Americans homeowners, 10 million who are downright underwater and another 10 million who are so close to being there that they don’t have the money to cover the cost of selling. And those are still numbers across the spectrum; things are far towards the bottom. ’30% of homes in the bottom price tier are in negative equity, while 18.1% of homes in the middle tier and 10.7% in the top tier are underwater’. If we assume that at the bottom, like across the spectrum, as many people are close to being submerged as those who already are, that would mean 60% of bottom tier borrowers are too poor to sell their homes (i.e. have less than 20% equity).


Pretty stunning numbers when you realize that this comes after 7-9 million homes were already foreclosed on (RealtyTrac lists 16.5 million foreclosure filings from 2006 through 2013), and millions more are still stalled in one or another step of the foreclosure process because banks don’t want to be forced to put the losses on their books. It also comes after 6 years in which many trillions of dollars were pumped into the top of the financial system to prevent it from crumbling. The problem is, of course, that those trillions were absorbed by the top. and never reached the bottom. It’s like watering a severely parched parcel of land.

A perhaps unexpected consequence of all this is that – potential – starters, a group already severely hindered by skyrocketing student loans and high levels of unemployment, find the starter home they might be able to afford remains occupied by people the market until recently would have penciled in for a move higher up the ladder. The US housing market is seriously congested. It could be opened with much lower prices, but that would significantly raise the number of underwater owners. As David Stockman writes: “Monetary central banking is an economy wrecker.” Just to make sure the market is eligible for awards in the absurd theater category, median prices have gone up by 11% since 2012. It should be obvious that such a market place in inherently self-defeating. Or should we really say American Dream-defeating?

Here’s what the Wall Street Journal takes away from the report:

Mortgage, Home-Equity Woes Linger

• At the end of the first quarter, some 18.8% of U.S. homeowners with a mortgage – 9.7 million households – were “underwater” on their mortgage, according to a report scheduled for release Tuesday by real-estate information site Zillow Inc. Z -3.19% While that is an improvement from 19.4% at the end of last year and a peak of 31.4% 2012, those figures understate the problem.

• In addition to the homeowners who are underwater, roughly 10 million households have 20% or less equity in their homes, which makes it difficult for them to sell their homes without dipping into their savings. Most move-up homeowners typically use their home equity to cover broker fees, closing costs and a down payment for their next home. Without those funds, many homeowners can’t sell.

• “It’s a sobering appreciation that negative equity is going to be with us for a while to come,” said Stan Humphries, Zillow’s chief economist. “Negative equity is central to understanding a lot of the distortions in the marketplace right now.”

• … prices have risen about 11% over the past two years, and several times that in rebounding markets like Las Vegas, Phoenix and much of California. Rising prices, combined with higher mortgage rates, have given sticker shock to buyers looking for a deal. This has been particularly hard on first-time home buyers who are usually in the market for a lower-priced home.

• Many underwater homeowners have gone into foreclosure or executed a short sale, where they sell the home for a loss. But many aren’t budging. “There are people who still have their jobs and they’re not late on their payment, but they can’t move,” said Vita Deveaux, a real-estate agent at Keller Williams Realty First Atlanta.

That’s essentially still just a bunch of numbers. But it’s not as if they’re some freak result of immaculate conception or spontaneous combustion. Therefore, David Stockman provides a wider perspective:

The Greenspan Housing Bubble Lives On: 20 Million Homeowners Can’t Trade-Up Because They Are Still Underwater

One of the most deplorable aspects of Greenspan’s monetary central planning was the lame proposition that financial bubbles can’t be detected, and that the job of central banks is to wait until they crash and then flood the market with liquidity to contain the damage. In fact, after the giant housing bubble crashed and left millions of Main Street victims holding the bag, Greenspan evacuated the Eccles Building, and then spent nearly a whole chapter in his memoirs explaining how this devastation wasn’t his fault.

Instead, he blamed Chinese peasant girls who came by the millions to the east China export factories where they lived a dozen at a time cramped in tiny dormitory rooms working 14 hour days. According to the Maestro, they “saved” too much, thereby enabling American’s to overdo it on the mortgage borrowing front. Yes, in so many words he said exactly that! Lets see. The Maestro was allegedly a data hound. Did he not notice that housing prices in the US rose for 111 straight months from late 1994 to 2006, and during that period increased by nearly 200% on average across US neighborhoods. How in the world could this giant aberration have escaped the notice of the money printers around Greenspan in the Eccles Building?

How in the world could any adult thinker blame this on factory girls in China – that is, a policy regime that caused excessive savings? In fact, it is plainly evident that the People’s Printing Press of China attempted to protect its exchange rate from appreciating against the flood of dollars emitted from the Eccles Building. It did this in mercantilist fashion by pegging the RMB exchange rate and thereby accumulating a massive hoard of US treasury notes and Fannie/Freddie paper. In short, China didn’t “save ” America into a housing crisis; the Greenspan Fed printed America into a cheap debt binge that ended up impairing the residential housing market for years to come. So the problem with central bank inflation of financial bubbles is that when they burst the damage is extensive, capricious and long-lasting.

It is no great mystery that historically trade-up borrowers have been the motor force that drove the US housing market. Selling their existing home for a better castle, trade-up buyers vacated the bottom-end of the market so that first time buyers could find a foothold. Now thanks to Washington’s eternal conviction that debt it the magic elixir of economic growth, first time buyers are few and far between because they are buried in student debt – about $1.1 trillion to be exact. Each graduating class has more students with loans to carry forward, and in higher and more onerous amounts. Fully 70% of the class of 2014 has student loans, and they average of about $30,000 each. Both figures are triple what they were just a decade ago.

As prices rise, and millions of homeowners and their families are drowning in the American dream, housing is a perfect reflection of what America has become: a nation in which the less affluent working men and women, those who were once known as the middle class, are sinking deeper, albeit slowly for the time being, along with the millions who abandoned the dream of homeownership as time went by.

That makes America already a radically different nation from what it once was, with only one way to go, but how many people fully acknowledge that change? I’m pretty sure most still think their dreams will return, and be fulfilled, at some point in the future. But that’s not going to happen, because all the credit that props up the top tier of society today was largely borrowed from the bottom tier, so things can only get worse when payback time comes. And it will, when interest rates rise. They can’t go any lower, unlike the fast growing contingent of less affluent Americans. Interest rates can only go up from here, and at some point it won’t matter anymore how skilled a swimmer you are.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - 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.
Raul Ilargi Meijer Archive

© 2005-2019 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