Thursday, July 26, 2012

Housing: Look Out Below

I don't think we are at the beginning of the recovery. I think we are at the end of a disastrous debt supercycle that has gone on for the last thirty or forty years, really. It started when Nixon defaulted on our obligations under Bretton Woods and closed the gold window. Incrementally, year after year since then, we have been going in a direction of extremely unsound money, of massive borrowing in both the private and the public sector. - David Stockman, former OMB Director for Reagan and former Congressman
I have to admit, I get excited when I put forth a thesis and the data confirms my view.  I didn't expect immediate confirmation yesterday when I proffered that the housing market was getting ready to go into "collapse" mode again that the "tight inventory" argument being used by perma-bulls/frauds like the National Association Reality was Orwellian b.s.

Yesterday afternoon a reader linked this article from a New Jersey newspaper:  "The long-expected second wave of foreclosures in states where courts delayed their processing appears to have begun in New Jersey and area counties, with filings jumping in the second quarter from a year ago."  LINK  Then this morning Bloomberg reported this:  "Foreclosure filings rose in almost 60 percent of large U.S. cities in the first half of 2012, indicating many areas will have more distressed homes on the market later this year, RealtyTrac Inc. reported."  LINK

THEN, the National Association of Realtors reported that pending sales for June dropped 1.4% unexpectedly in June.  A .9% increase was forecast by Wall Street's Einsteins. Even more significant - and reinforcing a serial of downwardly revising previously reported data - the NAR downwardly revised the pending homes sales number for May.  Here's a LINK  People, this is the seasonal time of year that the housing market is supposed to be at its relative healthiest.  In fact, the NAR data is seasonally adjusted - imagine how ugly the raw data must be.

The NAR's excuse for the drop in pending home sales is "tight inventory."  But we know that's a bunch of b.s.  I know short-sales are failing to close en masse.  I personally know someone who was sitting in a house with  adefaulted mortgage waiting for a short sale to close that failed because the financing fell through.  Furthermore, a lot of the bank-owned inventory was shifted to FNM/FRE, who then off-loaded it onto investors in big blocks thru a sale-to-rent program initiated by the Obama Administration.  The rental inventory is going to balloon back up, including many apartment buildings that have been started and which have caused the building starts statistic to bounce over the past year.  Interestingly, I happened to notice the other day that rental prices for homes in the Denver area had softened up from this past winter.  I wonder why?

As the rental inventory expands and drives rents lower, it will also drive home values lower.  This process will be exacerbated by this coming 2nd wave of en masse foreclosures.  I'm not the only one who perceives this insidious negative feedback cycle starting back up.  I linked this analysis the other day, but here it is again and it's worth reading:  LINK  For every area of the market, I have certain analysts to whom I pay attention, mostly to confirm my own thinking or gain new insight.  Mark Hanson is the guy worth paying attention to for housing market analysis.

If you are thinking about buying a house because your realtor is telling you that the market is tight and prices are going higher, don't do it.  If you are thinking about selling your house to capture remaining equity value, get it done as soon as possible.  This fall/winter could be very ugly, and not just for the housing market...

9 comments:

  1. Great to see that you and Mark have a special talent/weather eye pertaining to the real estate market.

    Keep up the great work, Dave!

    ReplyDelete
  2. michael schumacherThursday, 26 July, 2012

    Those comments from Weil are setting up something...no way that the architect of breaking up Glass-Steagel has turned course and has found god. I used to think that rapists and thugs were the lowest form of human existence...now it is most certainly people like Weil (and Greenspan, Paulson, Daimon, et al). Just takes a HUGE amount of balls to come out now after over 12 years of fucking the system and say "sorry....my bad". No he (they) want something and this is the set-up for it.

    MS

    ReplyDelete
  3. Barofsky On Geithner: "We Should See People In Handcuffs"

    However, in the following interview Barfosky does touch on some points which in the context of the recent Liborgate, should be brought front and center, especially since the increasingly apathetic US audience seems to not care about one bit (as opposed to their distant cousins across the Atlantic for whom Lieborgate has become a daily distraction). Namely, what Barofsky says is that Geithner and other regulators who allowed Lieborgate to proceed should not only lose their job but we should "see [Geithner] in handcuffs." Sadly that will never happen as it would actually be a deterrent to future crime among the highest echelons of America: something which is just not allowed to happen in a system whose very survival is increasingly reliant on rampant criminality.

    http://www.zerohedge.com/news/barofsky-geithner-we-should-see-people-handcuffs

    ReplyDelete
  4. Reality Bites


    The most dangerous people on the planet are the lifetime academics and these are the folks in charge of the most powerful institutions in the world today, the Central Banks. These lifetime academics have been coddled their whole lives within the “prestigious” institutions that define the paradigm that we live under. In rising high up in academia, these folks never really experienced failure. Sure, they may have received a B+ on a paper once instead of an A, but they have never experienced that crushing failure that only the real world can deliver. As I mentioned earlier, I would put all of the leaders of TBTF banks/brokers in the same category. They have been bailed out at the taxpayer’s expense so many times that they do not live in reality either.




    When they fail they get bailed out, when they succeed they take all the gains and then buy everyone else off around them. This is not a novel point, but it is extremely important to fully internalize because these are the people (academics and TBTF executives) that are in total control of all economic, social and political policy in the Western world today. It is because of them that we are in the situation we are in and it will because of them that we will crash and burn.

    http://libertyblitzkrieg.com/2012/07/26/reality-bites/

    ReplyDelete
  5. REVEALED: Corzine’s MF Global Was Client of Eric Holder’s Law Firm

    Those wondering why the Department of Justice has refused to go after Jon Corzine for the vaporization of $1.6 billion in MF Global client funds need look no further than the documents uncovered by the Government Accountability Institute that reveal that the now-defunct MF Global was a client of Attorney General Eric Holder and Assistant Attorney General Lanny Breuer’s former law firm, Covington & Burling.

    There’s more.

    Records also reveal that MF Global’s trustee for the Chapter 11 bankruptcy retained as its general bankruptcy counsel Morrison & Foerester--the very law firm from which Associate Attorney General Tony West came to DOJ.

    And more.

    As Government Accountability Institute President Peter Schweizer explains in the Washington Times Thursday, the trustee overseeing MF Global’s bankruptcy is former FBI Director Louis Freeh. At Holder’s Senate confirmation hearing Freeh served as a character witness for Holder and revealed that Holder had previously worked for Freeh. “As general counsel,” Freeh said, “I could have engaged any lawyer in America to represent our bank. I chose Eric.”

    http://www.breitbart.com/Big-Government/2012/07/26/REVEALED-Corzine-s-MF-Global-Was-a-Client-of-Eric%20Holder-s-Law-Firm

    ReplyDelete
  6. Going Through The Motion - of Empire and Systems Failure & Breakdown Crisis

    Many of our "systems" including the "financial system," the "electoral process," the "education system," the "agricultural system - food system," and "the news" are long gone yet they continue on in a non-functional "surreal condition" because of momentum and denial. There are a few people that have an understanding of "the current trend" and they are using terms that are quite similar in nature. This kind of failure resides beyond experience so it requires a new vocabulary and an outside perspective.

    http://youtu.be/lGeBnGkuzbM

    ReplyDelete
  7. Dave, what do you mean "and no just for the housing market?"

    ReplyDelete
    Replies
    1. whoops. typo. should read "not." as in, every other part of the system

      Delete
  8. From Natural Resources to Currency Wars w/Rick Rule & Jim Rickards

    Welcome to Capital Account. Today is a special episode, because not
    only do we have commodities and resource expert Rick Rule on the show,
    but fan favorite Jim Rickards is guest co-hosting with our own Lauren
    Lyster!

    http://youtu.be/OGyKtaeJbGE

    ReplyDelete