Thread: U.S. Housing Bust Has Begun

Here is an article out today, June 23, 2009. The mortgage forclosures are now spreading. At first it was California, Nevada, and Florida that were the worst areas (and they still are) but now it's hitting places like Boise Idaho, and Hawaii.

Remember, in 2010 & 2011, the next big wave of foreclosure will hit people with good credit, high incomes and high FICO scores. It's called Option Arm and Alt-A. These coming waves of foreclosures are based on mathematical models.

Lost jobs forcing more out of homes
June 23, 2009.

Unlike the foreclosure wave that began in 2007 and was driven by risky subprime loans, the latest increases are the result of the recession, which brought a sharp rise in unemployment across the country.


BIGGEST INCREASES


WASHINGTON — The nation's foreclosure crisis — once largely confined to only a few corners of the country — is spreading to new areas as the economy teeters. The foreclosure rates in 40 of the nation's counties that have the most households have already doubled from last year, a USA TODAY analysis of data from the listing firm RealtyTrac shows.

Most were in areas far removed from the avalanche of bad mortgages and lost homes that have hammered the U.S. housing market. Among the new areas: Boise and Green Bay, Wis.

"The ripple effect is just broadening out to cover a lot more places," says Susan Wachter, who studies real estate and finance at the University of Pennsylvania's Wharton School.

Unlike the foreclosure wave that began in 2007 and was driven by risky subprime loans, the latest increases are the result of the recession, which brought a sharp rise in unemployment across the country, Wachter and others say.

"What we're seeing now are people who are being impacted by the slowdown," says Deputy Housing and Urban Development Secretary Ron Sims.

Nationwide, RealtyTrac says the number of default notices, auctions and repossessions was nearly 18% higher last month than in May 2008, though it dropped slightly from April.

That growth is most pronounced in areas far from the crisis' epicenter. The 40 counties where foreclosures increased most rapidly are scattered from Hawaii to tiny York, S.C. Rates there have not reached the proportions seen in hard-hit states such as California or Florida; around Green Bay, for example, RealtyTrac recorded a monthly average of one foreclosure action — which includes default notices, auctions and repossessions — for every 458 homes, compared with one foreclosure for every 178 homes around Los Angeles.

Because of high unemployment, homeowners and buyers aren't seeing a quick end to the crisis, says Dan Rowe, a real estate broker in Boise. The number of foreclosure actions there has more than doubled this year to an average of more than 770 a month, from 350 last year, according to RealtyTrac. The foreclosure rate there now rivals Los Angeles'.

USA TODAY examined foreclosure filings through April in the 500 counties that have the most households. President Obama in March said his administration would spend up to $75 billion to help borrowers struggling with expensive mortgages or debts that exceed the value of their homes.

The administration concedes that will do little for those at risk of losing their homes because of the recession. "When people don't have any income," Sims says, "then it becomes really, really tough."

Link: Lost jobs forcing more out of homes - USATODAY.com

What I read causes me to believe that the current depression will deepen and the housing market will get worse.

As I expected, Obama's 700 billion stimuilus has not helped the housing industry nor lessened unemployment except for well-connected democrats being hired into high paying government jobs and the thousands of recuits hired into low-paying government jobs to man Obama's spreading infrastructure of socialism.

"There is an epidemic of bankruptcies: Circuit City, Sharper Image, Goody's, Gottschalk's, Comp USA, Levitz Furniture, Chrysler, GM. Not to mention all the local businesses that don't make the news when they close up shop. And the rash of corporate bustouts is far from over according to consulting firm Bain & Company, who predicts nearly 100 large ($100 million or more in assets) corporate bankruptcies by next year.

We're in a period of severe losses — a cluster of errors, as Murray Rothbard described it — with thirty-seven banks having failed already this year, and many more to come...

...Many bankers continue to contend that their banks are sound, protesting that they didn't make any subprime loans like those big Wall Street banks. But the cluster of errors doesn't contain itself to one asset. Houses don't suddenly appear. First, land is purchased. Then that land must be entitled — permission from local government must be obtained to build what the owner wants on the property. This is a lengthy process than can in the best case take months and in the worst cases take decades. Infrastructure improvements are then made and finally houses can be constructed.

So, low interest rates spur consumers and investors to buy houses — in some cases creating housing shortages and exploding prices, which, in turn, cause developers to buy land and begin the lengthy development process just described. After money supply increases by way of credit expansion, businesses malinvest by "overinvesting in higher-stage and durable production processes," Rothbard explained in Man, Economy and State.

Real-estate developers by and large use debt financing every step of the way from when they buy the land to when they start construction. In the past, banks traditionally shied away from making land loans. But as the market overheated, more and more banks got in the land-loan business. Land lending is inherently risky because land doesn't produce income and gaining government approvals in a timely manner is often problematic: land is many months from being converted to a use that is salable to the typical consumer. Lending for the construction is the least risky, but still the homes must be sold to pay off the loan.

Guaranty Bank of Austin recently demolished 16 new and partially built homes in Victorville, California. The cost of finishing the development exceeded what they could sell the homes for despite four of the homes already being complete. In early 2008, these homes were selling for $280,000 to $350,000 in the bedroom community 50 miles from LA.

The Victorville demolition is one of the most dramatic ends to a bad bet made during the housing boom, but abandoned developments have become an all-too-common sight in California. Nearly 250 residential developments totaling 9,389 homes have been halted across the state, according to one research firm.

And the residential meltdown is nowhere close to being over. There is reportedly a million-house overhang in the market nationwide. But misguided attempts by government are keeping home prices from correcting to affordable levels. "If an investor could purchase a home and rent it out for close to breakeven," real-estate broker Mike Morgan writes in Barron's, "we might be getting close to the bottom. But we are nowhere close to that level in most critical markets...

...A contraction of credit and liquidation of assets is exactly what would complete this recovery. Failing real-estate prices, business failures, and high unemployment signal that the economy is desperately trying to heal but the Fed is fighting valiantly to re-inflate, increasing its balance sheet 140% just to generate a 14% increase in the M-1 money supply. The folks at Grant's estimate the federal response to the current downturn to be 12 greater than that to the Great Depression, which prolonged that recovery for a decade.

However, all of this government intervention will only spawn new malinvestments and later depressions. "It should be clear that any governmental interference with the depression process can only prolong it," explained Rothbard "thus making things worse from almost everyone's point of view." Further delay of the readjustments will only lengthen the depression, postponing complete recovery indefinitely.

"The larger the scope of malinvestment and error in the boom," predicted Rothbard, "the greater and longer the task of readjustment in the depression." Government intervention on all levels guarantees that this will be a very long, bumpy recovery."
The Deflating Bubble - Doug French - Mises Institute

In my Washington, D.C. development the condos that sold for 250,000 in 2005 are now being sold (offered) by at least one bank for 106,000.

Originally Posted by Milkman

This is a boon for this with cash, if they can get a renter. I am familiar with NoVa, Papa. Particularly the 236 Little River Turn Pike area.

Papa, is the entire NoVa housing market declining at large level? Even with such a large percentage of people employed with the government and it's private contracting companies?

I believe that the wealthy NoVa counties have generally expeienced a major (50%?) loss of value for residential house. It has happened to me and my acquaintences. I do not find a reason to think the bottom has been reached.

But there are always conflicting rumers. For example, my neighbor passed on this gossip. Supposedly a realator told her that in our area people, or speculators, are currently buying many of the these cheap condos and houses, fixing them up a bit, and selling them for substantial profit. Interesting, if true.

The environment is much the same as the early 2000s. The government is encouraging purchase of homes by keeping the interest rate low. The government is also subsidizing the purchase of houses with deals on mortgages and tax breaks. The media is spreading rumors that the housing market likely has bottomed out. Banks have many foreclosed homes they advertise for sale at "bargain" prices.

I'm not researching the housing sector, it is too depressing. But I keep seeing statistics that I interpret as a contination of the general U.S. housing market depreciating. I came across this today about housing in California.

"Subprime blight areas in the Central Valley and the Inland Empire, which led the crash, have been collapsing at a slightly slower pace recently.

According to Zillow, the real estate information company, median prices in Stockton -- a contender for the title of Subprime Central -- have been falling by a little over 2% percent a month for the past three months. That may sound pretty bad -- it is pretty bad -- but everything needs context: Last winter the rate was more than 3% a month, and early last year the rate was nearly 4%

In places like Modesto, San Bernardino, and Riverside, the story is similar.

Stan Humphries, Zillow's chief economist, sees grounds for optimism. "It points to a bottoming of the market," he says.

Mark Hanson, an independent (and bearish) real-estate analyst, agrees that there are some signs of life. He says there's a lot of bottom-fishing going on. In the worst hit areas, the cheaper homes are actually being snapped up right now. "Supply is at a multi-year low," he says. "It's down 60% from last year. You're seeing 15 offers for every house."

The main buyers are first-timers, armed with their one-off $8,000 taxpayer gift, and investors.

Recent low interest rates have helped. And prices there have fallen so far that homes may be genuinely cheap. Dean Baker, co-director of the Center for Economic Policy and Research in Washington, D.C., says real estate markets are usually about right when homes cost about 15 times rental values. And in a recent report he found that paces like Stockton and San Bernardino have finally fallen through those key levels.

Here are the problems.

First, there is no sign of a slowdown in the waves of foreclosures hitting the California market.

If anything, they're getting worse. And that's bad news for real estate, no matter how cheap it is".

No light at end of California real-estate tunnel - MarketWatch