Of course, the Golden Truth has been explaining why the housing market is in trouble since the absurd taxpayer subsidy of the housing market ended April 30th.
The Mortgage Bankers Association weekly mortgage applications index showed another steep decline last week, falling seasonally adjusted 5.9% from the previous week. On a nominally calculated unadjusted basis, the purchase index dropped 2.3% (vs. 1.2% as adjusted) and has plunged 36.8% from the same week a year ago. Here's the MBAA press release: OOPS.
And yesterday it was reported that existing home sales dropped 2.2% from April to May. What is stunning about the nominal magnitude of the serial declines being reported for all aspects of the housing market is that this time of year is supposed to be the seasonally strong period for housing. It can be argued with a high degree of credibility that Obama's taxpayer subsidy of the last year has served no purpose other than to "pull forward" home sales and prop up prices - both are unsustainable given the deteriorating underlying fundamentals.
The other big problem facing the housing market, and a problem which has had an incredible amount beauty salon treatment to the real numbers, is that the total inventory of homes building up in the system is massive. When I say "total," I am including not only MLA listings, but also bank REO (foreclosed homes owned by banks) and homes currently in the foreclosure process.
Foreclosures hit a new record high last month, climbing an astonishing 44% from May 2009. Foreclosures increased in every State. Not only that, but Zillow reported that a full 25% of all homes with mortgages are now worth less than the amount of the outstanding mortgage on the home. I would bet good money that the real number is higher, as it is likely that - on average - owner-perceived and appraised home values are higher than actual market values. I would bet the number is more like 30%.
I have seen estimates that use this "total" inventory calculation that show the true inventory of homes out there to be 8 years, based on trailing twelve month sales rates. But as we go forward and the rate of sales decline, obviously the number of years worth of inventory climbs even higher.
There's not much I can opine about this beyond what I've suggested in previous blogs. So I'll will summarize this situation with a quote from the great Austrian economist, Ludwig Von Mises: “
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternaitve is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.Obama and Larry Summers can throw as much taxpayer money as they want at the housing market in order to buy votes. But ultimately all this does is create a massive transfer of wealth from the middle class to the banks, real estate brokers and sellers of the homes. Just like water eventually finds its own level, the housing market will eventually settle at a sales rate and price level which is substantially lower than where it is today.
Rest assured that the Govt/Fed will attempt to fight this process by printing massive amounts of money and creating even larger fiscal deficits. But the process is doomed. The ONLY way to protect yourself from this is with gold/silver/mining stocks. I can only lead a horse to water...