Housing Bubble Smackdown: Huge “Shadow Inventory” Portends Bigger Crash Ahead

[Crewleader]

by Mike Whitney / April 21st, 2009

Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama’s anti-foreclosure program — which is a combination of mortgage modifications and refinancing — a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it’s clear now that the program will fall well-short of its objective.

In March, housing prices accelerated on the downside indicating bigger adjustments dead ahead. Trend lines are steeper now than ever before — nearly perpendicular. Housing prices are not falling, they’re crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 MILLION MORE FORECLOSURES BETWEEN NOW AND 2011. It’s a disaster bigger than Katrina. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There’s nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting more hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

600,000 “Disappeared Homes”?

http://dissidentvoice.org/2009/04/housing-bubble-smackdown-huge-shadow-inventory-portends-bigger-crash-ahead/

[Sen. Walter Sobchak]

1. There are a couple of these near my house

they were properties bought by speculators near the peak of the bubble and have sat vacant since, a number of them were extensively renovated before the flipper was foreclosed on.
Untrashed and freshly renovated the banks are in little hurry to unload them.

[imdjh]

2. Bank and realtor games

I'm not in the business of buying or selling anymore, but I follow the market and have been listening to others and here's what I have come away with.

A whole lot of stupid and lazy out there.

The banks go to real estate companies to list their foreclosures. The real estate companies give these listings to their top salespeople, aka Queen Bees. These queens are the same bunch who brought you total arrogance in the sellers' market while doing their best to take credit for the exorbitant prices that "I got for my seller in record time." These are the same ones who tole their sellers not to accept contingent contracts, to refuse VA contracts, and to basically act like they were doing everyone a favor for selling their POS house for at least twice what it was worth. These are the same people who were feeding the lie that there was a demand far in excess of supply and supply chain. Demand = people who need houses. Where did those people go? Nowhere, because they didn't exist.

Go look on Realtor dot com. Half of the homes listed don't even have comments. Some only have one picture of the house. Wouldn't you think that in a tough market, realtors would be making a better effort to sell houses? Well, yes and no. They are making a better effort to sell owner and investor listings and they are using the foreclosures to do it.

Case in point. My brother was looking for a house near Los Angeles. They still aren't giving them away, but now is the time. It's better to miss the bottom than to be priced out in the rise. He found a house that he wanted, and the realtor (a queen bee) did everything within her power to discourage it. "Don't even bother with that one if you are gong to write a VA loan offer." Why? Because SHE didn't want to deal with a VA offer, a seller who isn't thrilled for selling so low in the first place and who will grumble at having to do repairs to sell the house. I slapped him around. I told him that now is the time to be a demanding and difficult person, to tell the realtor to do as you say or you will get another realtor. He moved in last week. But she didn't want to work.

You have realtors using the foreclosures to get people in the car, but then steering them away from the foreclosures, because real owner listings are easier to do and produce repeat business on both ends. When this is over, Wells Fargo will not be calling her, Joe and Mary will.

And the banks don't make it easy either. They act like they are doing you a favor by considering your offer, even at full price. I have news for you, when I write an offer for purchase it has a 24 hour lifespan. Banks can't handle that as a rule. They don't have a decision maker in place- they have to run it by a committee or a chain of command and that isn't the way residntial real estate is done.

[notesdev]

3. That is why I tell anyone who is thinking about buying

to just wait... you'll get so much more for your money in a few years, don't rip yourself off!

[imdjh]

4. Timing is everything

If you had waited @ $2 to buy Citi at $1 then you would have tripled your money if you sold at $4. If you bought at $2 and held on, you would have doubled your money at $4. Magic ball time, of course. However, if you had missed the bottom on C and bought at $3 thinking it would keep going back up, then you wouldn't make any money as of this moment.

Yes, it would be nice to buy at the rock bottom. So now is the time to go out and offer what YOU thing the house is worth, not what the price is. Now is the time to do your homework, find out how much the owner paid for the house ten years ago, and see if he just wants to get out from under. If the answer is "no" then move on to the next one.

Now is the time to follow the rules, not break them. Find the cheapest house in the nicest neighborhood because that neighborhood will come back quicker than the others. It's also the reason people aren't giving away homes in that neighborhood. If what you really want is a sprawling ranch house in the outer burbs with a pool, buy the cheapest house in the nicest neighborhood in town and when prices start recovering, you might be able to sell that house and pay cash for the outlying one, or pay cash for the retirement house.

WIsh I had done that.

[truedelphi]

5. People in the USA tend to buy things when everyone else is doing it.

The adage "Buy low - sell high" is anathema to most people.

[Crewleader]

6. Why Housing Is Not Coming Back

Why Housing Is Not Coming Back

Charles Hugh Smith

April 21, 2009

The financial MSM and government officials alike are looking for a recovery in the housing market to bubble valuations to "restart the economy." That is not going to happen--not this year, not in five years or even in ten years. Here's why.

The entire world is hoping that housing is about to "recover" and re-ascend its glorious bubble-era heights of valuation. But it's not going to happen.

Why not? For several fundamental reasons:

http://www.oftwominds.com/blog.html

[unc70]

7. Housing markets are mostly ok, problems mostly in CA,FL,NV and a couple of others.

Today's news is that the 26 cities/markets with the most foreclosures are in just four states. Even in those states, much of the trouble was with speculators rather than owner-occupied. Yes, some people bought too large a house with some ARM that exploded on them later when interest rates shot up.

Lack of state regulation of banking and real estate in these states made things much worse. People were buying and selling options for still-unbuilt condos in FL and elsewhere. There are some places like Detroit where the problems with housing and the economy in general go back many years.

Here in NC we have been lucky. Housing prices have managed to creep up slightly over the last 12 months (about 3% in my area). Unemployment is at record levels in NC, so things are not great here, but we can survive if we get a little luck.

NCNB (aka BofA) appears to me to have bought Countrywide primarily so that it could control the meltdown in CA, NV, AZ spilling over and destroying its retail banking operations on the West Coast. That is also why BofA just put aside large reserves to cover debt losses -- that is what real banks do every day (outside of NY). It is also common practice for banks to inventory foreclosed properties for later rather than completely destroying the value of the remaining properties in the same markets.

[wuvuj]

8. Long and drawn out....

http://informationclearinghouse.info/article22465.htm


Here's a clip from a recent statement from the IMF:

"Recessions associated with financial crises have typically been severe and protracted. Financial crises typically follow periods of rapid expansion in lending and strong increases in asset prices. Recoveries from these recessions are often held back by weak private demand and credit reflecting, in part, households’ attempts to increase saving rates to restore balance sheets. They are typically led by improvements in net trade, following exchange rate depreciations and falls in unit costs.

Globally synchronized recessions are longer and deeper than others. Excluding the present, there have been three episodes since 1960 during which 10 or more of the 21 advanced economies in the sample were in recession at the same time: 1975, 1980 and 1992. The duration of a synchronous recession is, on average, nearly 1½ time as long as the duration of the typical recession. Recoveries are usually sluggish, owing to weak external demand..."

The recession will be a long uphill slog regardless of developments in the stock market. Bernanke admitted as much last Thursday when he said that the collapse of U.S. lending will cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be....The damage from this turn in the credit cycle -- in terms of lost wealth, lost homes, and blemished credit histories -- is likely to be long-lasting.”

....

Economists Kenneth Rogoff and Carmen Reinhart have conducted a study on the last 18 international financial crises and compiled their findings in a document called: "Is the 2007 U.S. Subprime Financial Crisis So Different?" What they discovered was that "rising public debt is a near universal precursor of other post-war crises" and that countries that experienced large capital inflows were particularly vulnerable to crises. By 2006, two-thirds of the world's surplus capital was flowing into the United States via its current account deficit. This flood of foreign capital kept interest rates low, housing and equity prices high, and Wall Street flush with money. Now foreign investment is drying up, housing prices are falling, the secondary market is frozen, and deflation is setting in across all sectors of the economy. Rogoff and Reinhart believe that "recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011." (Newsweek, "Don't Buy the Chirpy Forecasts")

...

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama's $75 billion mortgage rescue plan is a mere pittance; it won't reduce the principle on mortgages and it won't stop the bleeding. Policymakers have decided they've done enough and refuse to lift a finger to help. They don't see the tsunami looming in front of them plain as day. The housing market is going under and it's going to drag a good part of the broader economy along with it. Stocks, too.