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Saturday, February 15, 2014

Another housing swan-dive?

We keep hearing that the housing market is coming back. But foreclosures have increased lately, and institutional investors are starting to get rid of homes.
The banks have been dragging their feet for 40 months now, slowing down the foreclosure process (and adding to the shadow supply of distressed homes.) in order to push up prices hoping to ignite another boom. Now–after 3 and a half years of blatant collusion–they’ve done a 180 and started speeding up foreclosures. Why?

It’s because they agree with the above-mentioned “110 economists, real estate experts, and investment strategists” who think that “institutional investors” are going to call-it-quits and move on to greener pastures. That’s going to push down prices, which means they’re going to lose money. So they want to get ahead of the curve and dump more houses on the market before the stampede. That way, they lose less money.

Keep in mind, the banks are up-to-their-eyeballs in distressed inventory. Even conservative estimates of shadow backlog puts the figure of 90-day delinquent or worse, above 3 million homes. But if you review the gloomier prognostications, the sum could easily exceed 6 million homes, enough to suck the entire bleeding banking system into a black hole of insolvency.
Another foreclosure crisis would mean another banking crisis. And that would open up the country -- psychologically -- to extreme solutions.

I don't like where this is heading.
Keep in mind, the backlog of unwanted homes could be a lot bigger than most people think. Way bigger. I was reading an article by Keith Jurow the other day, (“The Coming Mortgage Delinquency Disaster”, Keith Jurow, that paints a pretty grim picture of what is really going on behind the faux inventory numbers. Jurow–who has done extensive research on pre-foreclosure notice filings in New York state– says: “The number of monthly foreclosure filings in Suffolk County on Long Island …(were) more than 180,000 (while) fewer than 1,000 foreclosure filings had been served each month in (the last 4 years). By this calculation, Jurow figures that there should have been 1,192,000 foreclosures in New York state while the actual percentage of homes that have been repossessed remains in the single digits. (Read the whole article here.)

Chew on that for a minute. So, that’s a total of 180,000 homeowners who would have faced foreclosure under normal conditions, while less than 48,000 have actually been foreclosed. That’s 132,000 fewer foreclosures than there should have been IN JUST ONE COUNTY IN ONE STATE ALONE.”

The reason the prodigious shadow stockpile continues to balloon is quite simple, as Jurow points out in his piece: “Servicers do not foreclose on seriously delinquent borrowers throughout the entire NYC metro area. Completed foreclosures have actually declined rather dramatically throughout the nation in the past two years. The difference is that in the NYC metro, the servicers have not been foreclosing since the spring of 2009.”

So, there you have it; the banks haven’t been foreclosing because it hasn’t been in their interest to foreclose. Foreclosure sales push down prices which batters balance sheets and scares shareholders. Who wants that? So the game goes on.
Has this really been the case? The homeowners I've talked to (not many, admittedly) complain that their banks have been unwilling to renegotiate their loans. If banks don't want to foreclose, surely they would want to renegotiate?

The author of this analysis, Mike Whitney, contributed to Hopeless: Barack Obama and the Politics of Illusion, a compendium of left-wing anti-Obama essays. I haven't read the book yet, but the headline of one Amazon review -- "Same old bolshevik garbage" -- offers a strong recommendation.
What concerns me about Republican Politician Insanity syndrome is that Barack Obama is the perfect banker poses as a president, yet they still appear to dislike him.

Forclosures will always be an issue because 99% of ALL Seniors can't tap the equity in the home they spend a lifetime paying off.

This helps suffocate local economies because those paid off home could serve as very gentle local stimulus banks in which the elderly tap a few hundred bucks a month for anything they need to make themselves more comfortable and happy, which usually means local economic stimulus.

Suck that out of the equation and we have more economic malaise.

Government sequestration of 99% of all Elderly's Paid off Home Equity a Success
You really ought to read Naked Capitalism ( more, Joseph. The foreclosure/renogotiation backlog isn't news - Yves has been covering it in gory detail for years.
Thinking out loud here. If they could foreclose and don't then they are playing a waiting game. In the meantime those who have stopped paying their mortgage continue to live there and take care of the property which is better than if it were empty and unsold. My conclusion is that the selling market is so bad that they can't do it. If the properties drop to the bottom in value then at some point they will be up for grabs. But when?

After the Great Depression which is going to look mild when we look back, housing didn't come back and start to go up until the late 1970's, where it stalled for awhile before continuing up. There was a reason it went up in Philly. Then the Greenspan low interest rates shot it up to the sky.

Now they are in a Catch-22. The rates can't go lower, no jobs so no mortgage credit possible, no capital so no cash buyers, so I can't see where the market can come from except overseas for prime properties which NYC would be. The drug cartels have the money and are looking to clean it.That's the only place I can think of.

Joseph's article states that this looks like a new wave of foreclosures even as the stock market is booming and employment is allegedly down.

I just don't understand how that new info has to be credited to one source from 5 years ago.

Meant to write posing, not poses, in the first comment above.


It's all about rising consumer debt. Consumer debt continues to rise because unless a consumer hires an attorney, they are inevitably ensconced to never ending older debt that continues to have new interest rate charges tacked on which in turn prevents them from lowering their current debt load.
Over at Hullabaoo there have been several posts peripheral to this subject.

David Atkins discussed a Forbes article regarding Germany's management of housing to prevent boom/bust cycles. "Housing in a well-run economy are LOW."

Digby linked to posts discussing a spate of deaths, and allegations of hidden losses of $12B at Deutsche Bank. "Wall Street Murder Mystery".

I'd read that organized crime moved into the financial industries big time in the mid nineties. Haven't seen anything to contradict that assessment.
I would love a new housing market crash. First, I might actually be able to buy a home that isn't a money pit or better yet a lot that isn't absurdly overpriced on which I could build something small and efficient for about $10-15k. Second, I hope for another nail in the coffin for the very notion of a housing market. There are few things more ludicrous in our civilization than the idea of spending decades to pay off loans on an insanely overpriced small piece of land and cheaply constructed shelter that have no chance of ever providing equivalent value.
There are a number of reasons the banks have stalled on foreclosures. The main reason is that housing prices crashed after 2008 – putting them into foreclosure would mean you would have to mark them down to the new lower (and in some cases, dramatically lower) price. When you are trying to make your 'books' look good, that won't help. Especially when they are in the thousands. So Banks kept these homes on the books at the pre-crash price. Nifty trick, eh?
I think they realize that this is the time to dump this toxic asset while they can. Whatever bump to prices from Hedge funds (In Florida 63% of all homes in December (2013) were purchased with CASH – what average person can do that???) and other institutional investors due to their frenzied purchasing from the available stock of homes on the market can't go on forever. Cut and run. It's not the average American buying anyway – and they won't be propelling the market higher anytime soon either.

Matt Tiabbi has an excellent banking article in the Rolling Stone – just to keep you abreast of what fine work the Financial Institutions are doing:

It becomes much scarier each year – and I keep wondering when will the other shoe drop? How much corruption and in your face theft will people tolerate? I never would have guessed that I would be an adult in a world that is this screwed up.
Zolo: Have you considered land in Kagel Canyon, just outside of the San Fernando Valley? Last time, I looked, you could find lots for a surprisingly cheap price. Gorgeous views, and an easy drive to town. People "in the know" go there to buy land, plop down an old mobile home, and call it a day.

Water and sewage, alas, are problems.
My reply: I guess you didn't read Atlas Shrugged when you were young to prepare yourself. (Neither did the Randians really get it either tho.)
I've never considered southern California. I like California but haven't seen any of it south of Big Sur. I'll give that some thought.

For now, I'm still hoping to find a small lot here in town where I can get utilities but also to test the limits of the county building codes by putting up a wee timber-framed straw bale house, complete with a sealed dirt floor. So far I haven't found anything that says you can't. And that'd be nice middle finger to the companies that are throwing up $150k split-level clone homes.
They're giving away free homes to writers in Detroit, if you're into being part of urban renewal. I'm into urban renewal but not frigid midwestern winters, so bought in Baltimore, where there are a ton of incentives given to people who buy a place to live in for themselves.

In answer to Richard's question as to what average person can buy a house with cash...older people downsizing can. And I happen to know who that person is competing with: often foreign investors or developers buying large numbers of houses. In my recent experience, banks would sell low to them. On the other hand, individual offers were often refused and those properties taken off the market to wait for prices to rise.

The neighborhood I bought into is filling up with owners and prices rising because of the incentives offered. I'm not sure how isolated our results are, but I do know there is a big push to support our area and the city can't afford to do this everywhere.

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