Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Housing Market Crash Update, There's A World of Pain Ahead

Housing-Market / US Housing Apr 18, 2010 - 02:25 AM GMT

By: Mike_Whitney

Housing-Market Best Financial Markets Analysis ArticleThe brief period of stabilization in housing appears to be over and the next leg-down has begun. Mortgage rates are edging higher, foreclosures are on the rise, and the government programs that supported the sector, are being phased out. The uptick in bank-owned properties (REO) is adding to surplus inventory and pushing down prices.


A recently released report from First American CoreLogic shows that "distressed sales accounted for 29 per cent of all sales nationwide." Nearly one-third of all home sales are distressed REOs. Also, according to a report from Clear Capital, "Home prices nationally have dropped 3.9 percent quarter to quarter, the first quarterly drop in nine months. (Thanks to Diana Olick, Realty Check, CNBC) Bottom line: More people are being forced from their homes, the banks are facing bigger losses, and the housing market is on the skids.

The Obama administration's Home Affordable Modification Program (HAMP) has largely been a bust. Of the 3 to 4 million potential modifications, only 170,000 homeowners have successfully converted into a new mortgage. Under the new "principal reduction" plan, borrowers will be able to refinance into a FHA loan if lenders agree to slash the face-value of the mortgage. This puts the government on the hook if the homeowner defaults, which will lead to heftier losses for Uncle Sam.

One of the main sticking points with the new program has been second liens, which are the home equity loans that were made using the mortgage as collateral. Falling home prices have made these loans essentially worthless, but the banks have resisted writing them off altogether because hundreds of billions of dollars are at stake. Even so, the four biggest banks have signed on to the new program hoping to stem the surge in foreclosures. Here's an excerpt from an article on Housingwire that shows how desperate the banks are to stop the bleeding:

"Two major banks are expecting major increases in foreclosures, by the end of 2010.

"According to the Irvine Housing blog, Bank of America, which currently forecloses on 7,500 homes every month will see that number rise to 45,000 by December 2010.....

“JPMorgan Chase is forecasting bigger foreclosure numbers in the coming months. According to a presentation at the end of February, JPMorgan expects the amount of real estate owned (REO) properties in its portfolio to reach between 33,000 to 45,000 in Q410. By comparison, in Q409, REO inventories were at 23,100." ("Big Banks Prepare for Major Rise in Foreclosures Ending 2010" Jon Prior, Housingwire.)

Bank of America's 6X increase in projected foreclosures is a real eye-popper. It suggests that housing prices (particularly in California) have quite a bit further to tumble. This will effect everything from private consumption to state revenues. It's a disaster.

Worth noting is that subprime defaults are largely over, and that, the new wave of foreclosures is made up of option ARMs, primes and Alt As. Many of these are high-income individuals who are using "strategic default" as a way to cut their losses and walk away from what has turned out to be a bad business deal. In fact, the data show that well-heeled homeowners are almost twice as likely to default than middle or low income people. So much for moral hazard.

Obama's revised HAMP program could keep as many as one million homeowners out of foreclosure, but, even so, it's just a drop in the bucket. Foreclosures and short sales will soar into 2011 no matter what the government does. In fact, the torrent has already begun as CNBC's Diana Olick reports on Tuesday:

"Lender Processing Services just put out its "Mortgage Monitor Report," and we have a new record: The nation's foreclosure inventories reached record highs. February's foreclosure rate of 3.31 per cent represented a 51.1 per cent year-over-year increase. The percentage of new problem loans also remains at a five-year high. The total number of non-current first-lien mortgages and REO properties is now more than 7.9 million loans. Furthermore, the percentage of new problem loans is also at its highest level in five years." (CNBC, Diana Olick, Realty Check.)

Whoa. 8 million homeowners are behind on their payments! And, that's not all; mortgage applications dropped 9.6 per cent last week while the Refinance Index (refis) fell 9 per cent in the same period. So, mortgage apps are down even though the Firsttime Homebuyer Tax Credit is still in effect (it ends in two weeks) and, even though this is the "peak season" for home sales.

So, why the sudden spike in foreclosures a full four years into the housing crash?

Because the banks have been withholding supply to keep prices artificially high. There may have been an understanding between the banks and the Fed (a quid pro quo?) to keep inventory low so it looked like Bernanke's $1.25 trillion Quantitative Easing (QE) program was actually stabilizing the market. But now that the banks are stuffed with reserves, there's no need to continue the charade. So the dumping of backlog homes has begun. That will cause inventories to rise and prices to fall. More homeowners will slip into negative equity which will lead to even more foreclosures. It's a vicious circle. If the coming wave of foreclosures is anything close to Bank of America's projections, there's a world of pain ahead.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Casey
18 Apr 10, 18:30
Any Surprise to This Report ???

Is anyone surprised by this recent 'revelation'?

We've been hearing that the second wave is coming ... and it looks like it's here!


C
20 Apr 10, 06:33
I believe it

I believe this, especially since everyone I know thinks housing prices have bottomed. Everyone I know also thinks his/her house is worth some unrrealistic number. Fundamentals are still funny, everyone is just hoping that home prices have bottomed. I know people trying to sell for years, I waited 6 months toying with buyers, and realtors, then started dropping my price 5k a month until it sold. Good time to hold your cash and make ridiculous offers.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in