Wednesday, June 23, 2010

"The Housing Market Appears To Be In Trouble" - Bloomberg News...

Note - this just in: "WASHINGTON (AP) -- Sales of new homes collapsed last month, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer get government incentives."  The housing market is in full collapse.

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...


  1. Nice article! I wonder what the housing stats would be if Freddie/Fannie/FHA weren't backing nearly every mortgage these days, plus all the Downpayment Assistance Programs that I have heard rumors of. Also, what if interest rates weren't at historically low levels? LOL! As if I (and everyone else) didn't know the answer.

    Historically, purely fiat currencies always die. The Federal Reserve Note is purely fiat. Therefore, it is not going to hold value forever, or even for much longer, imho. Glod and Sliver!


  2. Dave--the problem is not that of leading a horse to water as much as you are preaching to the choir.

    Nice take down this morning in PM, huh? double hit today--6 AM ish and then about 20 minutes prior to nyse open

  3. the Govt-backed entities finance 95% of the housing market right now - FRE/FNM/FHA/GNMA/FHLB.
    FHA permits 3-5% down. FHA replaced the private label subprime.

  4. Every time the FED meets they should all win an Oscar for best performance in the work of a fiction.

    Joe M.

  5. your mises quote has typos.

  6. thanks for pointing that out - there's drawbacks to posting on my laptop from bed LOL.

  7. whats a good price to buy silver at.. its well below $19

  8. what's the lowest silver can be taken down to before options expiration tomorrow?

  9. Silver is being kept below $19 for options expiration tomorrow. What is the target price for gold to be kept under? 1200?


  10. re: gold - looks like $1250 will be the 100% cap. they can make some money if they can get gold below $1220 for Thurs close. Not sure if they'll get that but ya never know.

    Re: silver - there's not a lot of options incentive for them to take silver a lot lower. it could go below $18 briefly but odds don't favor that. In terms of targets, I don't have any hard bottom-targets. we took off our silver hedges this morning and started putting cash back to work. we bought physical gold/silver and bought some stocks, with emphasis on silver stocks like SVM and HL.

  11. Dave, did u read the article about con-gress contemplating NOT passing a budget for next year??? What does that mean exactly?! The drunken sailor gets a blank check???

  12. Yup. Couldn't have said it better myself, except that I would add in "crack addicted" to "drunken."

    I'm wondering if this was intentional in order to allow Obama to keep feeding public employees and unions AND to allow the Govt to keep propping up the housing market. The latter will now require at $1 trillion.

  13. Dave,

    Is there somewhere on the web I can go to get a clear explanation of the mechanics of the manipulation of PMs - how it actually works?



  14. start with look thru the articles posted in the archives going back to like 1999. Let me know if you are looking for more but if you read thru what's at GATA, you'll have a great understanding.

  15. For those of you who don't realise BP's connections and can't put names to the faces here is the link for BP.

    Peter Sutherland Peter Sutherland is chairman of BP plc (1997 - current). He is also chairman of Goldman Sachs International (1995 - current). He was appointed chairman of the London School of Economics in 2008. He is currently UN special representative for migration and development. Before these appointments, he was the founding director-general of the World Trade Organisation. He had previously served as director general of GATT since July 1993 and was instrumental in concluding the Uruguay GATT Round Negotiations. Prior to this position, he was chairman of Allied Irish Banks from 1989-1993 and chairman of the Board of Governors of the European Institute of Public Administration (Maastricht) 1991-1996. Educated at Gonzaga College, University College Dublin and at the Honorable Society of the King's Inns, from 1969 to 1971 Mr. Sutherland was a tutor in law at University College Dublin. From 1981 until early 1982, he was attorney general of Ireland and was a member of the Council of State. He was reappointed in 1982 until 1984 when he was nominated by the Government of Ireland as a member of the Commission of the European Communities in charge of competition policy. During his first year at the Commission he was also responsible for social Affairs, health and education and thereafter for relations with the European Parliament. He serves on the Board of Directors of The Royal Bank of Scotland Group plc and is associated with the following organisations: World Economic Forum, Foundation Board member; The Federal Trust, president; European Policy Centre Advisory Council, president; European Round Table of Industrialists, vice-chairman; the Royal Irish Academy, member; goodwill ambassador to the United Nations Industrial Development Organisation; and consultor for the Administration of the Patrimony of the Holy See. He has published numerous articles and the book "Premier Janvier 1993, ce qui va changer en Europe" (Paris). He was presented with the Robert Schuman Medal for his work on European Integration and the David Rockefeller Award of the Trilateral Commission. Mr. Sutherland was a Trilateral Commission author of 21st Century Strategies of the Trilateral Countries: In Concert or Conflict? (1999, with Robert B. Zoellick and Hisashi Owada) and was re-elected in 2006 for a third term as European Chairman.

    February 2009

  16. Seems like LBMA is also hitting gold this AM.

    When does the BS end, ffs?

  17. Time to Panic About Greece, Again
    This morning, credit default swaps on Greek five year paper hit a record high of 958 bps.

    Risk of Greek sovereign default within 5 years at 56.5% says CMA datavision.

    Greek/German 10-year government bond yield spread at 802 bps vs 792 bps at previous day’s settlement.

  18. We don't need no stinking budget because Banana Ben has the printing press on full tilt just to keep the whole system from utter collapse.

    Joe M.