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I know the theme is deflationary for housing, but is there an argument, specifically for housing, that would counter the huge decrease in housing prices this author forecasts? Is housing an asset class that will face deflation, as other asset classes (gold, energy and commodities) will inflate as the currency issue continues? In other words, is the 10-20 million shadow supply of homes coming on-line so huge that the supply of houses (soon to be dumped on the market) will overcome even the strong inflationary effects of the currency debasement? Since housing is the largest asset class for most Americans, I am surprised we do not discuss this more.
http://theautomaticearth.blogspot.co...ces-ready.html
While today’s Case/Shiller Index numbers (home prices rose slightly from July to August, even as they're still down 11.3% compared to August 2008) are interpreted as positive by the obvious suspects, what I see in it is a fast growing unmitigated disaster for Americans across the board.
A 1% increase in prices is not exceptional in any way, as we can see in this Mark Hanson graph::
What the graph also shows is that an estimated 4 million homes will still be sold in 2009, and that is not good news, unless you're trying to offload unwanted properties and/or your income depends on loan transaction fees of one kind or another. If you’re a buyer, you pay too much for the home. If you're a taxpayer, you get stuck with guarantees for loans and securities based on home prices that are too high.
How much too high? Goldman Sachs said recently that the homebuyer tax credit, modification programs and foreclosure moratoria pushed US housing prices up by 5%. While that looks to be a very low estimate in itself, it doesn't really matter, because it pales in comparison to the price increases caused by the ever more extreme presence of the government in the market.
This graph from San Francisco Fed senior economist John Krainer shows that Fannie Mae, Freddie Mac, and the fast rising star Ginnie Mae (which provides blanket guarantees for FHA securities), who not so long ago were responsible for less than 50% of securitizations, now are left with about 95% of them. They can't sell them to China anymore, those days are over, so the Fed has bought well over $1 trillion of the stuff just in the past year. It's in this graph that the real market-distorting perversity can be found, as well as the reason why the government needs to get out of housing as fast as it can.
You see, it's starting to look as if the homebuyer tax credit might not be renewed as is, nor even extended. Instead, we're in for a phase out. Which probably means that those people on the Hill that are up for re-election actually have begun to listen to some of the voices critical of this particular tax break. Reports have now come from multiple sides which suggest that the cost per newly purchased home of the credit is anywhere between $43,000 and $292,000, once you exclude the 85% of buyers that would have bought a home regardless of the credit.
Still, while those reports are convincing and damning at the same time, they tell but a tiny sliver of the real story. Which is that of those 85%, precious few would have been able to purchase a home without the ever-present ever-willing assistance of a full slew of governmental or semi-governmental agencies and corporations eager to buy up and securitize any and all mortgage loans the banking system can lure their dumbfounded and unsuspecting clientele into.
It would seem reasonable to assume that 85% out of those 85% wouldn't be able to get a mortgage if the government were not so hungry to put the tax revenues it receives from its citizens and voters into a housing (equals mortgage equals banking) market that is guaranteed to collapse someday soon regardless of what amounts of public funds are injected.
That is at issue here: the US housing market is way beyond any shape or form of salvation. And that in turn means that the only thing the government achieves with its tax credits and other attempts at stimulating or stabilizing the market, or whatever politically palatable term may be found, is an under the radar stealth transfer of real estate losses from the private to the public sector. And I for one don't believe for a moment that Washington doesn't know that.
So why can we be so sure that US real estate is pining for fjords and pushing up daisies? This weekend's Miami Herald provides a good answer.
http://theautomaticearth.blogspot.co...ces-ready.html
While today’s Case/Shiller Index numbers (home prices rose slightly from July to August, even as they're still down 11.3% compared to August 2008) are interpreted as positive by the obvious suspects, what I see in it is a fast growing unmitigated disaster for Americans across the board.
A 1% increase in prices is not exceptional in any way, as we can see in this Mark Hanson graph::
What the graph also shows is that an estimated 4 million homes will still be sold in 2009, and that is not good news, unless you're trying to offload unwanted properties and/or your income depends on loan transaction fees of one kind or another. If you’re a buyer, you pay too much for the home. If you're a taxpayer, you get stuck with guarantees for loans and securities based on home prices that are too high.
How much too high? Goldman Sachs said recently that the homebuyer tax credit, modification programs and foreclosure moratoria pushed US housing prices up by 5%. While that looks to be a very low estimate in itself, it doesn't really matter, because it pales in comparison to the price increases caused by the ever more extreme presence of the government in the market.
This graph from San Francisco Fed senior economist John Krainer shows that Fannie Mae, Freddie Mac, and the fast rising star Ginnie Mae (which provides blanket guarantees for FHA securities), who not so long ago were responsible for less than 50% of securitizations, now are left with about 95% of them. They can't sell them to China anymore, those days are over, so the Fed has bought well over $1 trillion of the stuff just in the past year. It's in this graph that the real market-distorting perversity can be found, as well as the reason why the government needs to get out of housing as fast as it can.
You see, it's starting to look as if the homebuyer tax credit might not be renewed as is, nor even extended. Instead, we're in for a phase out. Which probably means that those people on the Hill that are up for re-election actually have begun to listen to some of the voices critical of this particular tax break. Reports have now come from multiple sides which suggest that the cost per newly purchased home of the credit is anywhere between $43,000 and $292,000, once you exclude the 85% of buyers that would have bought a home regardless of the credit.
Still, while those reports are convincing and damning at the same time, they tell but a tiny sliver of the real story. Which is that of those 85%, precious few would have been able to purchase a home without the ever-present ever-willing assistance of a full slew of governmental or semi-governmental agencies and corporations eager to buy up and securitize any and all mortgage loans the banking system can lure their dumbfounded and unsuspecting clientele into.
It would seem reasonable to assume that 85% out of those 85% wouldn't be able to get a mortgage if the government were not so hungry to put the tax revenues it receives from its citizens and voters into a housing (equals mortgage equals banking) market that is guaranteed to collapse someday soon regardless of what amounts of public funds are injected.
That is at issue here: the US housing market is way beyond any shape or form of salvation. And that in turn means that the only thing the government achieves with its tax credits and other attempts at stimulating or stabilizing the market, or whatever politically palatable term may be found, is an under the radar stealth transfer of real estate losses from the private to the public sector. And I for one don't believe for a moment that Washington doesn't know that.
So why can we be so sure that US real estate is pining for fjords and pushing up daisies? This weekend's Miami Herald provides a good answer.
'Shadow market' clouds housing recovery
[..] an analysis of the so-called shadow market done for The Miami Herald suggests the number of homes and condos in the pipeline to come on the market in South Florida is nearly five times larger than all residential properties currently listed for sale
It's the sheer number of properties available, and the avalanche of foreclosures and walkaways in the pipeline. There is no way the government can buy them all, or provide and guarantee the credit for 10-20 million new homebuyers to purchase a home. And certainly not at today's elevated prices.
Oh, and at the same time that the homebuyer tax credit will be phased out, did you hear that the Federal Reserve is about to start phasing out its securities purchases? There’ll be no buyer left. It's hard to predict what other tricks Wall Street's Treasury Department has up its sleeve, but rising or stabilizing home prices are out of the question. It has cost the American people trillions of dollars to prop up the market to the present day, where general price levels have fallen "only" 30%. All attempts to keep the market alive have failed miserably, at least, that is, from the point of view of ordinary Americans.
With the government support about to vanish, the future prospects for home prices and the building and mortgage industries are Halloween material, while Bank of America (which bought Countrywide) and Wells Fargo (the country's largest mortgage lender) face increasingly shaky days. Home Home prices are ready to go into a freefall. When the smoke clears prices will be down 80-90% from their peak. Needless to say that will cause such a chaos it's hard to predict what America will look like.
It's the sheer number of properties available, and the avalanche of foreclosures and walkaways in the pipeline. There is no way the government can buy them all, or provide and guarantee the credit for 10-20 million new homebuyers to purchase a home. And certainly not at today's elevated prices.
Oh, and at the same time that the homebuyer tax credit will be phased out, did you hear that the Federal Reserve is about to start phasing out its securities purchases? There’ll be no buyer left. It's hard to predict what other tricks Wall Street's Treasury Department has up its sleeve, but rising or stabilizing home prices are out of the question. It has cost the American people trillions of dollars to prop up the market to the present day, where general price levels have fallen "only" 30%. All attempts to keep the market alive have failed miserably, at least, that is, from the point of view of ordinary Americans.
With the government support about to vanish, the future prospects for home prices and the building and mortgage industries are Halloween material, while Bank of America (which bought Countrywide) and Wells Fargo (the country's largest mortgage lender) face increasingly shaky days. Home Home prices are ready to go into a freefall. When the smoke clears prices will be down 80-90% from their peak. Needless to say that will cause such a chaos it's hard to predict what America will look like.
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