Wednesday, January 27, 2010

Housing Market Unequivocally Heading South Again...

Week-to-week mortgage applications down 10.9% / New home sales fall 7.6% to 9-month low

The MBA commented that despite low fixed mortgage rates, "there appears to be a smaller pool of borrowers who are willing and able to refinance at today's rates."  Article Link  Although this index can be volatile from week-to-week, we would have expected that refinancings would be accelerating ahead of the big adjustable and option-ARM reset wave starting right about now (see this graph:  Mortgage Reset Wave Coming).  Furthermore, by all media accounts, we have been led to believe that the housing sales market is supposedly bouncing. 

The problem is, and the key phrase in the above quote is "able to refinance".  A large majority of homes that were purchased with ARMs and Pay-Option-ARMs are substantially underwater, meaning that the homeowner must show up with with an armload of cash in order to effect a refinancing.  Otherwise he is stuck with a much higher monthly payment, and one that he did not anticipate having to ever make when he signed up for the funny money mortgage.

And the Case-Schiller Index, which has been indicating price increases in housing resales over the past couple of months is flawed as a true indicator of housing market values.  I've linked a detailed explanation of why CS is bogus, but essentially the argument is that CS reflects pricing based on what is sold. It does not reflect a true statistical sampling of housing values which would include a huge pool of homes waiting to be foreclosed.  Moreover, the seasonal buying mix of buyers for the past few months has skewed housing sales toward "normal organic" resales and de-emphasized foreclosure sales.  Here's the link and it's well worth reading:  Case-Schiller is Bogus.

The bottom line is that all of the evidence is now pointing to another big dive in the housing market, which will ultimately lead to another round of financial collapse, barring an unprecedented amount of money printing by the Fed/Treasury.  In fact, I would argue that once Bernanke is safely reconfirmed, this process will begin.  Make no mistake about it, we are going to find out this year why Turbo-Tax Tim Geithner clandestinely announced the removal of the Government/Taxpayer funding cap on Fannie Mae and Freddie Mac.


  1. A close friend runs the federal Bankruptcy court that handles 1/2 of Maryland. She recently told me that YTD bankrupcty filings are up by 1000 OVER the same period in the Federal fiscal year in her district alone. That is since Oct. Furthermore, she knows that mortgage holders are taking no action to foreclose or move families out of properties. She said the inventory of foreclosed homes, left unlisted, has never been higher.

  2. Thanks for the color JT. That "shadow" inventory of homes which could be foreclosed but are not being foreclosed is enormous. I know two people who are renting out higher end homes, the owner is in default but the banks have done nothing to initiate foreclosure. The renters are not making rent payments either.

  3. Where can I sign up for one of these no-pay mortgages?

    So what's the end-game here? Do banks just sit on the non performing assets while they have mark to market in place?

    Perhaps foreclose 15 years later when a rising tide of inflation "lifts all ships."