US housing disaster continues as bank seizures jump 25%
Posted on 16 September 2010 with 3 comments from readers
The US housing crash that started with subprime mortgage lending and caused the global financial crisis two years ago is getting worse rather than better with bank seizures up by 25 per cent in August and 95,364 families losing their homes, reported Realty Trac today.
The US is on track for a record year for home foreclosures and repossessions. Moody’s reckon around two million homes will be seized by lenders through to the end of 2011. And estimates suggest up to 12 million homes may be added to the burgeoning supply of property.
More house price falls
This is of course bad news for prices. Market experts see houses now at fair value but the risk is an overcorrection to the downside, as usually happens in market swings, driven by oversupply.
Realty Trac said 96,469 default notices were issued last month, the final stage of foreclosure. Sales of new and existing homes fell to their lowest level on record in July and the S&P/Case-Schiller index of house prices in 20 cities is down 28 per cent since 2006.
Morgan Stanley estimates that the number of bank-owned and foreclosure-bound homes that have yet to hit the market is near to eight million in total. That is about three per cent of US households.
But Professor Karl Case, a founder of the S&P/Case Schiller index told Bloomberg that house prices could hit a bottom in six months. The problem is that the long fat tail of repossessions will keep the market trading at depressed levels for several years with a substantial portion of US mortgage payers in negative equity.
And unless the US is gripped by inflation, which seems unlikely at the moment but could follow further monetary stimulus, house prices are not going to hit their nominal 2006 highs for the best part of another decade, according to most experts.
Drag on US economy
This is a powerful dampener to any US economic recovery. The role of housing as an ATM to fund household expenditure has been replaced by an asset that has become a liability. This is deleveraging at its worst.
But it could get even worse if the Fed loses control of interest rates. Presently 30-year mortgage rates of 4.5 per cent are at an all-time low but if the bond market bubble pops then interest rates will shoot back up.
Could it be that the Fed that failed to see the housing bubble forming because it set interest rates too low will also mess up its management of the recovery? Certainly the precedents for trusting the Fed are not that good.
3 Comments posted by readers:
My guess is that US real estate won’t bottom until late 2011.
The Fed Philadelphia index just FELL for the second month. Most experts expected to go up. That is not a good sign. Obewon might be right with his negative forecast for the end of this year.
I’m still drinking heavily after reading the new Bob Hirsch book interview yesterday on http://www.aspousa.org.us. I’ll bet it will be a best seller in your neck of the woods, Peter. They will need more computer storage space to keep up with the new asset purchases.
We have another huge, 103 BCF increase in USA natural gas storage. At least my utility bill won’t go way up. Factories aren’t using the stuff? Some company just got permission to export LNG from the USA. That is yet another example of Alan Greenspan being WRONG when he said that LNG importers would reap extraordinary investment returns at a congressional hearing a few years ago. I saw him say it on TV. Add that to his, too low for too long, interest rates that helped blow the housing bubble.
The US Government now has over 19,000 pages of regulations in the Code Of Federal Regulations. So says CNBC’s Mark Haynes.
Some fellow on CNBC yesterday, said that the huge number of ETS, when combined with computerized trading programs, are becoming very dangerous. Here is a concrete example of societal breakdown. The great AT&T couldn’t find a telephone number for the retirement system of the City of New Orleans. Thank heavens for the Internet, or I would have to have journeyed across the Lake, and probably gotten another $20 parking ticket near City Hall.
Oh, 1 in 7 Americans now live in poverty, the most since 1965. Cutting taxes for the rich has YET to trickle down. No doubt, the polo crowd must STILL be paying too much tax to invest enough in order to create jobs. Isn’t that how it is supposed to work in the trickle down theory?
Point well taken about the role of houses as ATM machines… I’ve been ranting for months and months now about how the loss of “HELOC” (Home Equity Line of Credit) money will inevitably banjax consumer spending and consumption, with countable consequences.
Just saw on the news this morning about how consumer sentiment as measured by Univ. of Michigan consumer sentiment index fell to an unexpectedly lower reading, of 66.6 – a nice round number that basically says that stores are having a “devil” of a time getting people to part with their money.
OMG, do you see whats transpiring in Syria? In spite of a brutal government crackdown, the manifestations continue