Housing Bubble II: Bubble, Bubble, Toil and Trouble

“This isn’t your father’s housing and mortgage market- Mark Hanson, Real Estate Analyst


In 2007 the largest housing bubble in American history was inflating and literally popped overnight.  The Mainstream media would prefer that you focus on the DC Circus Show than on the Case-Shiller charts that indicate that 2017 looks eerily familiar.

In 2007 unemployment was low,  banks offered easy credit and low interest rates caused housing prices to soar to unprecedented heights.  Today housing prices have now reached or exceeded 2006 peak levels, credit is tighter, unemployment higher, and wages are flat.  Only through governmental intervention was this rebound possible.
Take a look at the Case-Shiller data presented by real estate analyst Mark Hanson below:


Other observations and “red-flags” from Hanson on Peak Housing, after the latest new home sales data show:

  • Sharp downward sales revisions for past 3-months.
  • Huge downward price revisions for past 3-months, lower by 10%, 5% and 3%, respectively, exactly as he predicted on last month’s release.
  • Builders maxed out on pricing power; Med & avg prices flat for 2-years.
  • The all-important Southern Region was flat YY; the South makes up over half of all sales in the nation, and drives builder demand and profits.
  • 100% of the June YY sales gain came from the Western Region, which doesn’t jibe with the weak price performance and will likely be revised lower next month.
  • Income required to buy the avg priced builder house is at historical highs and has completely diverged from the multi-decade trend line.
  • Historically low growth & rebound relative to resales suggest “lack of supply” meme in the Existing Sales market is over-stated.

Hanson says that, “Peak builder is here.”

Other quantitative and qualitative observations include:

1) New Home Sales “up to” 1995 levels after $15 TRILLION in debt and Fed liquidity aimed largely at the sector.

2) Builder pricing power largely flat for 2-years.

3) Income required to buy the average priced builder house has completely diverged from the multi-decade trend line. This obviously explains why sales are only at 600k SAAR now vs 1.2 million in Bubble 1.0. Reversion to this mean will occur…either thru a sharp rise in income; new exotic loan programs, which make payment less; or house prices dropping.

4) Last time builders were this euphoric was the peak of the biggest credit bubble in history.

5) It’s too bad the public isn’t as euphoric about buying as the builders think they are.

Zillow Raises Estimate Again: 16 Million Homes Underwater

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Editor’s Comment:

This is why I am re-starting my seminar tours. The information out there is disinformation and in this case sellers don’t realize how badly they have been screwed until they are walking toward the closing table. The “underwater” phenomenon represents a vast market inventory shadow that is not being counted by anyone — which is why my estimates of market activity and prices are so much lower than what you hear from everyone else. So far I have been right every year.

Zillow is at least making an effort. It is sharpening the definition of “underwater.” We have been saying for years that the number of homes “underwater” is both rising and vastly underestimated. The reason I knew was that just by putting pencil to paper and using all the factors that measure the amount of money one might get as proceeds from the sale of a home, the average PROCEEDS from the sale of residential property was substantially below the average VALUES that were being used. Zillow has now entered the world of reality by adding all the relevant mortgages and not just the last one allocated to that property.

Once upon a time when you sold a house you received a check for the proceeds of the sale. It was always lower than what you expected because of expenses and charges that you incurred and after you deducted the expenses that didn’t appear on the HUD 1 Settlement Statement (money that you spent preparing the house for sale).

Now the situation is different. Instead of getting a check, many if not most homeowners must bring a check if they want to sell their home. Most homeowners, in other words, must pay money out of their pocket if they want to sell their home. In some cases, the bank will allow a short-sale where they will accept a payoff less than the amount they say is owed, but even then, the hapless homeowner will still be unable to recover his down payment, all the money he put into the house in furnishings and improvements, and all the principal payments made on a house that was intentionally overvalued, using inflated appraisals that would  leave the homeowner screwed.  

When they start looking at “Seller’s Proceeds” from the standpoint of a real HUD 1 settlement sttements, the figure will be even lower than the current Zillow estimate. The disconnect between “prices”, “home values” and “proceeds” has never been greater. The question of whether or not a home is underwater is determined by proceeds of sale — without regard to price or value. Being underwater means to answer a question: “How much money will the seller need to spend in order to sell the property with free and clear title.”

Forgetting the whole issue of title corruption caused by the use of MERS which further affects prices, values and proceeds, the amount of money required from the seller in order to sell his/her home is nothing short of sticker shock and the fact remains that a majority of the people affected do not know what has happened to their wealth. They do not understand the extent to which they suffered damage by Wall Street schemes. And of course they don’t know that there is something they can do about it — like any rational businessman instead of the deadbeat bottom-feeders  portrayed by bank mythology.

Once all factors (other than MERS) are taken into consideration, the Zillow numbers will change again to more than 20 million homes and will probably reach 25 million homes that are really underwater, most of which are hopeless because values and prices will never get enough lift, even with inflation, to make up the difference between what they must pay as sellers to get out of the deal and what they can get from buyers who are willing to buy the home. Add the MERS’ factors in, now that title questions we raised 4 years ago are being considered, and it is possible that many homes cannot ever be sold at any price. Where the levels of “securitization” are limited to only 1, then perhaps it is possible to sell the property but not without spending more money to clear title. 

Nearly 16M Homes Are Now Underwater


Zillow just reported that their data shows nearly 16 million homes in this country are now in a negative equity position where the house is worth less than the mortgages on the home. This number is dramatically higher than the approximate 11 million reported by other entities. Why the huge difference? Zillow professes to take into consideration ALL loans on the property not just the most recent loan (purchase or refinance).

The key findings in the study:

▪       Nearly one-third (31.4 percent) of U.S. homeowners with mortgages – or 15.7 million – were underwater on their mortgage.

▪       A slower pace of foreclosures after the robo-signing issues of 2010 contributed to slower progress in working down negative equity. Foreclosures cause homes to come out of negative equity when a bank or third party takes ownership.

▪       Nine in 10 homeowners continue to make their mortgage and home loan payments on time, with just 10.1 percent of underwater homeowners more than 90 days delinquent.

▪       Nearly 40 percent of underwater homeowners, or 12.4 percent of all homeowners with a mortgage, owe between 1 and 20 percent more than their home is worth.

▪       An additional 21 percent of underwater homeowners, or 6.6 percent of all homeowners with a mortgage, owe between 21 and 40 percent more than their home is worth.

▪       About 2.4 million, or 4.7 percent of all homeowners with mortgages owe more than double what their home is worth.

How can negative equity impact the housing market? In the report, Zillow Chief Economist Stan Humphries explains:

“Not only does negative equity tie many to their homes, by making homeowners unable to move when they may want to, but if economic growth slows and unemployment rises, more homeowners will be unable to make timely mortgage payments, increasing delinquency rates and eventually foreclosures.”

Case Shiller: House Prices fall to new post-bubble lows in March NSA

by CalculatedRisk

S&P/Case-Shiller released the monthly Home Price Indices for March (a 3 month average of January, February and March).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the National index.

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Pace of Decline in Home Prices Moderates as the First Quarter of 2012 Ends, According to the S&P/Case-Shiller Home Price Indices

Data through March 2012, released today by S&P Indices for its S&P/CaseShiller Home Price Indices … showed that all three headline composites ended the first quarter of 2012 at new post-crisis lows. The national composite fell by 2.0% in the first quarter of 2012 and was down 1.9% versus the first quarter of 2011. The 10- and 20-City Composites posted respective annual returns of -2.8% and -2.6% in March 2012. Month-over-month, their changes were minimal; average home prices in the 10-City Composite fell by 0.1% compared to February and the 20-City remained basically unchanged in March over February. However, with these latest data, all three composites still posted their lowest levels since the housing crisis began in mid-2006.

“While there has been improvement in some regions, housing prices have not turned,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time.”

Case-Shiller House Prices Indices

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 34.1% from the peak, and up 0.2% in March (SA). The Composite 10 is at a new post bubble low Not Seasonally Adjusted.

The Composite 20 index is off 33.8% from the peak, and up 0.2% (SA) from March. The Composite 20 is also at a new post-bubble low NSA.

Case-Shiller House Prices Indices

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 2.8% compared to March 2011.

The Composite 20 SA is down 2.6% compared to March 2011. This was a smaller year-over-year decline for both indexes than in February.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Case-Shiller Price Declines

Prices increased (SA) in 15 of the 20 Case-Shiller cities in March seasonally adjusted (12 cities increased NSA). Prices in Las Vegas are off 61.5% from the peak, and prices in Dallas only off 6.7% from the peak.

The NSA indexes are at new post-bubble lows – and the NSA indexes will continue to decline in March (this report was for the three months ending in February). I’ll have more on prices later


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EDITOR’S NOTE: The illusion of securitization has popped as analysts pore over balance sheets and income statements, coming up empty — no real assets worth the necessary amount to sustain the megabanks while at the same time the real assets are not perceived where they have been all along — with the average American consumer, homeowner, borrower, credit card holder, student loan borrower etc., because the great weight of the impossibly high debt that is claimed does not exist, for the most part, and is certainly not secured, nor qualified to be called non-dischargeable in bankruptcy.

As long as government and society sticks with the illusion we will be going around in circles and the housing market will never find a bottom because the current state of the title registry across the nation is corrupted. We can pretend it isn’t true but the reality is there is no way out except to tell the truth and get it over with, thus stimulating the economy, the housing market, and the our society back into the engine of growth, prosperity and the envy of the world.

By accepting the illusion we are stuck with the same thought going around in the heads of most people: “You borrowed the money, you didn’t make the payments, a contract is a contract and so you lose.” The reason this doesn’t work is simple: it isn’t true – none of it. Nobody borrowed money in the old conventional sense. They bought a loan product that seemed like a normal loan but was really the issuance of a security as part of a scam that included the issuance of multiple securities based upon the same transaction.

By moving the shells around, and relying upon the perception that these are moral obligations that the buyer (“borrower”) should repay Wall Street gets the benefit of both worlds — (1) profits from the sale of all the securities issued and traded and subjected to all sorts of sophisticated insurance contracts, credit default swaps and other third party guarantees that went to the benefit of Wall Street instead of the real parties in interest — the buyers of bogus bonds and the buyers of bogus loan products who still think of themselves as borrowers (2) the real assets as well, all of which were falsely represented at the commencement of any any of the transactions.

Our predictions have held true and constant since we began this blog — that this mess will probably continue for decades because the politics of it will interfere with  basic application of simple laws, rules and procedures that have been in place for centuries. There won’t be a housing recovery until we end the foreclosures and reverse the ones that have the appearance of being completed. They were and shall always be a farce that continue their corrupting influence, growing like a cancer on our economy every time another transaction takes place either at the level of high finance where another security is traded, or at ground level where they are “selling” a house they don’t own or which still has multiple mortgages and clouds on title that can never be fixed.

Home Prices Slid in December in Most U.S. Cities, Index Shows


Real estate prices slid in just about every part of the country in December, pushing a housing market that once seemed to be rebounding nearly back to its lowest level since the crash began.

At this dismal point, some economists and analysts say that the damage has been done, and there is nowhere to go but up. Many others argue that the market has still not finished falling.

And then there are those who maintain that, possibly, things are about to get a whole lot worse.

Robert J. Shiller, the Yale economist who is the author of “Irrational Exuberance” and who helped develop the Standard & Poor’s/Case-Shiller Home Price Index, put himself in this last group. Mr. Shiller said in a conference call on Tuesday that he saw “a substantial risk” of the market falling another 15, 20 or even 25 percent.

The 20-city Case-Shiller composite is already off 31.2 percent from its peak, according to data released Tuesday. Average home prices in Atlanta, Cleveland, Las Vegas and Detroit are below the levels of 11 years ago. A drop the size that Mr. Shiller says he thinks could happen would put Chicago, Dallas, Charlotte and Minneapolis there, too. It would create a lost decade for housing in much of the country even before the effects of inflation.

Mr. Shiller said several political trends indicated a dreary future, including the uncertainty over the mortgage holding companies Fannie Mae and Freddie Mac and proposals to reduce the mortgage tax deduction.

Mr. Shiller’s colleague, the economist Karl E. Case, a professor emeritus of economics at Wellesley College, says he does not think the outlook is so dire. He said in the conference call on Tuesday that he thought the housing market was at “a rocky bottom with a down trend.”

The S.& P./Case-Shiller index of 20 large metropolitan areas fell 1 percent in December from November, although the drop was just 0.4 percent when the data was adjusted for seasonal variations. Eleven cities in the index posted their lowest levels in December since home price peaks in 2006 and 2007, up from nine cities in November. Phoenix and New York joined a list that includes Atlanta, Chicago and Seattle.

The only city in the index that posted a monthly gain on an unadjusted basis was Washington. Five cities posted a gain on an adjusted basis.

One data point that favored Mr. Case’s optimism: The adjusted declines in December and November were about half the drops in the previous two months, indicating the slide might be slowing.

Most analysts seem to fall between Mr. Shiller and Mr. Case in their forecasts.

“Even though affordability is exceptionally high and housing is incredibly cheap, the double-dip in house prices that began last year will continue throughout this year,” Capital Economics, a consulting firm, said Tuesday. Their estimate was that prices would drop another 5 percent unless a “vicious circle” of falling prices and rising foreclosures developed, in which case prices would be worse.

Also released Tuesday was the Case-Shiller quarterly index that covers all homes in the country. It showed prices fell 3.9 percent in the fourth quarter and 4.1 percent for all of 2010.

The Case-Shiller index is a three-month moving average, which means it changes slowly. It is now less than 3 percent above the low recorded in the spring of 2009, when there was widespread hope that the market was starting to recover.

To accelerate the process, the Obama administration offered a carrot for new buyers: a tax credit. The credit did its job, enticing hundreds of thousands of buyers to accelerate their purchases in the fall of 2009 and the spring of 2010. But the credit did not lay the groundwork for a permanent rebound.

“Every place is pretty much getting hit a second time for essentially the same reasons,” said Andrew LePage, an analyst with DataQuick Information Systems. “Slow economic recovery, little job growth, still-tight credit, no more government stimulus, a pervasive and gnawing sense that prices could fall more, too few people getting jobs and too many worrying about losing the one they have.”

Amid all this gloom, one group thinks the situation is much better than generally portrayed: the National Association of Realtors. Its data shows the median existing single-family home price rose in 78 out of 152 metropolitan statistical areas in the fourth quarter of 2010 from the fourth quarter of 2009, including 10 with double-digit increases.

But even as the group asserts that the market’s decline has been overstated, it is being accused of having bad numbers of its own.

The blog Calculated Risk wrote last month that the real estate group was planning major downward revisions to the last three years of house sales data. CoreLogic, a data company, said last week that it estimated 2010 home sales at 3.6 million, much less than the 4.9 million the National Association of Realtors was claiming. If accurate, the CoreLogic numbers would indicate a market even more troubled than is generally assumed.

Against this welter of conflicting claims and dark predictions, many would-be sellers are opting out until that distant moment when they can get what they think they deserve. Some are renting their home after moving to new quarters; others are simply turning down that new job and staying put.

This can work to the advantage of those who plunge ahead. Jordan and Caitlin Van Horn bought their house in the fashionable Seattle neighborhood of Ballard three years ago. Ever since then, the market has slumped. The couple is moving to Alabama and feared the worst when they put their home on the market.

They were pleasantly surprised. Their four-bedroom house fetched $545,000 after less than a week, only 5 percent less than they paid.

“The lack of inventory really worked to our advantage,” said Mr. Van Horn, a co-developer of a bookkeeping system for small businesses. “We feel thankful for the way things turned out.”

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