Thursday, May 13, 2010

Reality Check

Dr. Housing Bubble is looking at the state of the real estate market. It is not good. Not good at all.

Let me start with a quote that explains the above chart.

The ultimate sign of housing distress is foreclosure. This should be obvious. So for all the talk of a housing recovery I point to the above chart. Today, as in right now, we are in record territory for the number of homes in foreclosure. 14 percent of all U.S. mortgages are in some form of foreclosure.
So are things actually improving? Would the government lie to you? No and yes.
...foreclosure filings are still at record levels. In fact we are heading to a 3.5 to 4 million foreclosure year in 2010! This is somehow a positive thing for the market? People forget that foreclosures happen because of underlying economic issues. If everyone was making big bucks and homes were going up in value then we wouldn’t have this problem. Just look at the number of foreclosure filings back in 2005. Roughly 60,000 to 70,000 per month. Last month we hit 367,000+ which was an all time record. When foreclosure filings get back down to more normal levels, then we can say the housing market is improving.
If the numbers are still rising then things are not improving. No matter what the government says.

So who is making the housing market these days (providing loans)? I'm sure you can guess. But no need for guessing. There are answers.
96.5% of all originated loans are now government backed. Remember Fannie Mae and Freddie Mac and their epic continuing losses?
The housing market has been nationalized. As in bought by the government. I suppose it is better than outright theft. That comes later when taxes have to rise to pay for the "fun".
Banks are moving on current REOs (the small batch that they have) and pumping this up as good news but the 90 days plus foreclosure number is still trending up. How is this magic done? We’ve talked about it above. You simply don’t move on delinquent homeowners. You ignore actual losses. You mark your assets to fantasy valuations.

In total the housing market is in worse shape today than it was a few years ago.
So that may explain why the economy seems to be trending up. A LOT of home owners are living rent free. Why does that make any sense at all? Two reasons come to mind. One is that if the banks had to acknowledge their losses they would be failing. Which is to say the banking system is kaput. Another reason is that a property with people living in it will be better maintained than one that is vacant.

Now about the nationalization of the mortgage industry.
The bailouts have been one large transfer of wealth to the banking sector. Remember that the bailouts were brought about under the guise of helping the housing market and keeping people in their homes. None of that has happened. Ironically the only thing that seems to keep people in their home is when they stop paying their mortgage! If that is the strategy we have arrived at after $13 trillion in bailouts and backstops to Wall Street we are in for a world of problems.
Yes we are.

May I also suggest reading Foreclosures, Auctions, and Banks Obscuring Financial Data by Dr. Bubble.

My guess is that Europe is in no better shape. And that does not even take into account the coming collapse of the Chinese real estate bubble.

Cross Posted at Classical Values

1 comment:

Chuck said...

Oh MS, Things in Europe are wonderful, just like the US, best of all things, in the best of all possible worlds.
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