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We are told everday how housing is improving along with the economy but how can that be when deliquencies continue to rise? Does anyone believe that housing has truly bottomed?
perhaps it has bottomed! the only people for whom it hasn't bottomed are those who still have equity left in their homes. if however you fall into that other category of homeowner, the decision to drop you selling price is out of your hands.
i'll explain what i mean:
if you bought your home in 1956, beachfront in malibu, chances you only paid $10000 (just pulling figures out of my ----) at the peak your home was worth $2.5m, you now have it listed at $1.5m but it's been on the market for 18months and no takers. you can't afford the property tax and therefore have to sell. at some point your cashflow predicament will force you to take the best offer on the table and that offer could be anything!if someone offers you $50 grand and it's the best offer around, you have to take it end of story!
banks like ordinary citizens would also be forced to sell at the price the market would pay if they ran into cash flow problems. ie if a bank ran out of cash to cover depositor withdrawals, it would be forced to sell the 50 foreclosures it has on its books. like the you, the bank would have to accept the highest offer on the table, and like you, that offer could be anything.
there are alternatives for both parties. you could go to a bank, your kids, your wealthy great uncle and get them to loan you some money to see you through. likewise a bank could go to other banks, investors etc to see them through. if this failed, you'd be back to square one and you'd have to accept the highest offer on the table.
the banks however, esp if they're big banks, have one last option which you don't have. the government! they go to the government and tell them that if they don't get any money, they will collapse and that could lead to a collapse of the entire system. the govt, frightened to he core, agrees to help. they will loan the banks money for free to get through this rough spot.
now the banks are safe. they don't need to sell the 50 foreclosed homes on their books. in fact, they have a blank check from the govt to cover all their obligations. they therefore set the price of the homes on their books. if they sell, great! if they don't, no problem, they'll just have them mothballed and boarded up until inflation returns and they can be made whole again!
many years ago, i predicted that this housing market would collapse. i was right! i thought when it does, i'll stroll into town with my sack for of cash and buy the playboy mansion for a pittance! i was so wrong! the government will not allow asset prices to fall. end of story! if their printing does not help to re-inflate the bubble, they'll print some more, and if that doesn't work they'll print even more. they will print and print and print until the cost of everything else, gas, phones, food, clothing etc comes up to the cost of real estate. not the other way around.
if you're looking for a deal, the only place to find it is where the owner still has equity. shortsales/reo's might get you a measly 10-20% discount but that's it. so perhaps it has bottomed.
its not a recovery and there was no stimulus.
monster debt assumption stopped a free fall. the 10% nationwide unemployment is a contraction. those jobs are not coming back. when UIB runs out its pte at mcdonalds for them. my mailbox is full of offers for credit cards more than b4. there should be a credit crunch after downturn this large, there is not. no market adjustments zero just bailouts and IOU's. china is concerned but not us, debt is beng used like CPR, its not a healing. reaganomics lied--- debt is not meaningless.
perhaps it has bottomed! the only people for whom it hasn't bottomed are those who still have equity left in their homes. if however you fall into that other category of homeowner, the decision to drop you selling price is out of your hands.
How can it have bottomed when delinquencies are still rising? There is a direct correlation between delinquencies and lower prices. You will find that when delinquencies reach about 4% it causes noticeable downward pressure on prices. As prices drop, it puts more people in negative equity positions, and many of them in turn, decide to default. When you add growing unemployment to that equation, it further complicates the problem. Nothing has been done to repair the damage to our economy, it has only been transferred from the banking sector to the taxpayer. At some point in the not too distant future, we will all be paying the price in the form of higher taxes, which will do more damage to the economy. This cycle will continue until we undertake real reform and do the things necessary to begin to rebuild our economy.
How can it have bottomed when delinquencies are still rising? There is a direct correlation between delinquencies and lower prices. You will find that when delinquencies reach about 4% it causes noticeable downward pressure on prices. As prices drop, it puts more people in negative equity positions, and many of them in turn, decide to default. When you add growing unemployment to that equation, it further complicates the problem. Nothing has been done to repair the damage to our economy, it has only been transferred from the banking sector to the taxpayer. At some point in the not too distant future, we will all be paying the price in the form of higher taxes, which will do more damage to the economy. This cycle will continue until we undertake real reform and do the things necessary to begin to rebuild our economy.
jim, did you read my post? i never said anything about whether or not we'll be paying higher taxes in the future. what i did say is that banks do not have to sell their inventory of foreclosed homes. another 5 million of them can be foreclosed and still only a tiny sliver of a percentage will make its way to market at the price the banks are prepared to accept. the rest will be boarded up until the inflation, which the likes of bernanke and krugman are gagging for, appears!
employment is irrelevent. they will find a way to get consumers lending again. i think it will come in the form of 40yr and 50yr mortgages. btw, i never argued that this is the ideal way for the powers that be to run the economy. rather that is the way they are going to run the economy!
jim, did you read my post? i never said anything about whether or not we'll be paying higher taxes in the future. what i did say is that banks do not have to sell their inventory of foreclosed homes. another 5 million of them can be foreclosed and still only a tiny sliver of a percentage will make its way to market at the price the banks are prepared to accept. the rest will be boarded up until the inflation, which the likes of bernanke and krugman are gagging for, appears!
employment is irrelevent. they will find a way to get consumers lending again. i think it will come in the form of 40yr and 50yr mortgages. btw, i never argued that this is the ideal way for the powers that be to run the economy. rather that is the way they are going to run the economy!
The problem with waiting for inflation is that
1) The property will be being purchased with inflated dollars which will mean a loss to the banks.
2) The mountain of debt the banks are sitting on now that is still current, will also be repaid in inflated dollars. This will also equate to a real loss for the banks.
Inflation benefits the borrower in a low interest environment, not the lender.
How cam employment be irrelevant? Employment is the key component for any economy.
The only way out of this situation is real earnings growth for working people. In order for that to happen, there will have to be a lot of changes in the way we are doing things. Our system no longer works because some segments of the system are cheating. In order to gain riches for themselves they are undermining the entire economy. That needs to be changed. The era of smoke and mirrors is over.
The problem with waiting for inflation is that
1) The property will be being purchased with inflated dollars which will mean a loss to the banks.
2) The mountain of debt the banks are sitting on now that is still current, will also be repaid in inflated dollars. This will also equate to a real loss for the banks.
Inflation benefits the borrower in a low interest environment, not the lender.
How cam employment be irrelevant? Employment is the key component for any economy.
The only way out of this situation is real earnings growth for working people. In order for that to happen, there will have to be a lot of changes in the way we are doing things. Our system no longer works because some segments of the system are cheating. In order to gain riches for themselves they are undermining the entire economy. That needs to be changed. The era of smoke and mirrors is over.
i understand all of that. the point is that banks will limit supply until they can get their money end of story. they won't be dropping real estate prices any further. just so you understand, i totally agree with you in thinking that this is the wrong way to address the problem, but that is the way it will be addressed, trust me!
funny.. cant get blood out of a rock.. banks will have no choice but to lower the home prices..unless china is sending all the people over to live here?
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