Why is the Housing Collapse Coming in America?
Housing pundits are continuing to show signs that the housing market is showing a robust recovery. This is government media propped up non-sense.
What is Really Happening Now
Despite all the mortgage modifications, refinance loans, and cutbacks in real estate owned (REO’s) by banks that have taken place in the past three years, prices continue to decline. Will this change anytime soon?
I know we’re told that mortgage delinquencies have declined over the past year, let’s really see if that is the truth, or just a government fabrication to boost consumer confidence. The simple truth is: the banks are not foreclosing on properties in major markets, probably from a central directive from the FED, in an attempt to stabilize the top 20 major real estate markets.
Let’s take a look at potential buyers. It’s an undeniable fact that the move-up buyer is gone in just about every major metro market. Most of those would like to sell and buy another house but are unable to do so. Either their houses underwater or they stand to make no profit from the sell their home, and have no savings to purchase a new home, so they’re unable to move up in their equity is gone. The trade up buyer of years past ages 30 to 55 has disappeared.
This leaves first-time home buyers and investors as the sole drivers of the current real estate market. According to inside mortgage finance, their survey of roughly 2500 brokers nationwide finds that roughly 30% of all purchases nationwide are by investors, mainly paying all-cash. Some analysts have argued that this is a good thing for housing markets this is pure garbage. There aren’t enough potential all-cash investors to make up for the collapse of the trade up market.
Furthermore, investors are concentrating in the sand states were prices have collapsed more than anywhere else Arizona, Nevada, California and Florida. That leaves first-time buyers. Do you think there are enough potential first-time buyers out there to keep prices from declining further? I’ve written extensively about renters and the changing attitude towards buying home. Had it not been for the FHA’s program of mortgage insurance, buying by first-time homeowners would have collapsed. The latest FHA single-family outlook revealed that 70% of all purchase mortgages went to first-time buyers when you look at securitized mortgages bought or guaranteed by Fannie Mae and Freddie Mac, the picture is very grim. In the fourth quarter 2011 80% of all Fannie/Freddie mortgage originations were refinances. The average down payment was 30%. How many first-time buyers can put that much down? More recently, in April 2012 Federal Reserve Board survey of bank loan officers found that fewer than 4% of those surveyed said that their bank at ease mortgage lending standards for prime mortgages worst of all is what I’ve been saying for better than a year. A growing number of prospective first-time buyers are reluctant to buy even though they can afford to. Their attitude is this what’s the rush?
Let’s put this housing credit bubble and collapse in historical perspective. Prior to this disaster, the largest bubble and collapse in American history was that you. S. Stock market collapse of 1927 to 1932. Most people are probably not aware that during the stock market boom, space you could buy stocks with only 10% down. Stockbrokers would lend up to 90% of the price of any stock. Doesn’t this sound like the housing bubble?
The Historical Perspective
The Dow Jones industrial average peak at nearly 400 in October 1929. When it finally bottomed out, Dow Jones industrial average had collapsed to 34. Now that is a true collapse. Every few months, pundits would claim that the worst was over. Doesn’t this sound familiar? Then the stock market would plunge lower yet again.
Do I see anything on the horizon that could turn things around and correct the growing imbalance between potential home buyers and sellers? No. Nothing, whatsoever. Wishful thinking, and I won’t do it.
Over the past two years, I’ve written extensively about the so-called”shadow inventory”. It is real, growing and very scary in what it says about things are headed in the near future. You need to keep in mind that the total number of underwater homeowners is far larger than just those who purchased during the bubble years of 2004 to 2008. Millions of homeowners took out what became known as quotation ‘cash out” refinance loans. Banks were only too willing to shovel out cash to owners whose homes are rising at double-digit growth rates.
What has been almost completely overlooked by the media is the enormous number of properties with second mortgages. There are still nearly 12,000,000 home equity lines of credit outstanding. Is safe to say that 98% or more of these properties are underwater.
Finally let’s not forget all those homeowners have pulled their home off the market in the past year. A recent survey published by ProTech valuation services showed that MLS listings have dropped more than 35% over the last year and metro areas such as Phoenix, Miami, Atlanta, Orlando, Philadelphia, Boston, Tampa, and Riverside. Dozens of other major markets are reductions of more than 20%.
Many homeowners are frustrated, and unwilling to take the financial hit and do a short sale. Nearly all are simply hoping that the pundits are right that the housing market is bottoming this year. Sooner or later some of these homes will go back on to the active listing market.
My advice to homeowners in nearly all major metro markets is quite simple. Get an appraisal from a professional appraiser and find out what the market value of your home is currently. Seriously consider putting your home on the market within the next six months. You will have a chance of selling it.
Within this year, I expect many of the weakest markets to show signs of unraveling. Perhaps the most vulnerable market is the entire New York City metro area. Sooner or later, the banks will have to start for closing or even doing short sales. When these properties hit the market in significant numbers, I have no doubt prices in the entire region were 19 million people reside will collapse.
For other major metro areas, the plunge and depend on how crazy the bubble was during the 2004 two 2008., And how large the total number of underwater owners becomes predictions are always iffy. But I’m convinced that things will get ugly from here and that there is no solution that can prevent its collapse the wisest thing for you to do is prepare for the worst.