I am so frustrated by all of the talking up of the housing market.  More people are going to be hurt financially by this intentional deceit by the infamous "They" we have talked about in previous posts.  We got here because we have been lied to throughout this whole housing collape.  There is a lot more pain to come in housing.  Just because you have held out this long does not mean you are going to make it through what it still awaits us no matter what "They" say. 

The piece below is a full reprint of a post by Martin Andelman of Mandelman Matters.  Martin and I have had many discussions about this topic and he puts it very well so I wanted you to see this. 

Talking Up the Housing Market? Yada, Yada, Yada… Talk is Cheap

By Martin Andelman

Now I get it… our plan is to try to TALK the housing market up.

Apparently, and I just realized this today, some people think they have figured out that if we just keep talking about how the housing market is recovering… it will respond by recovering.  It’s positively brilliant.  Someone should really let the EU countries know about this strategy because they could really use it, since absolutely nothing else is working in the least.

Hey, you guys in Spain… instead of all that rioting, try saying this over and over again in the newspapers and on television: “El mercado de la vivienda se está recuperando… El mercado de la vivienda se está recuperando!”  That should pretty much handle it.  See, problem solved… glad I could help.

And you guys in Greece, try saying whatever this sounds like: “Η αγορά κατοικίας είναι ανάκτηση.”  And your welcome, by the way.

Okay, look… talk is cheap.  And the strategy of talking about how the housing market is recovering in order to actually make anything recover, although hysterical, is just plain stupid.

On the other hand, since it’s obvious that essentially no one, present company excluded, has the foggiest idea of what to do differently, or is willing to even try doing anything differently, then I suppose talk is all we’ve got.  So, go ahead chatty Cathys… blather on.  Besides, I’ve gotten much better at ignoring you.

The Scale of the Crisis at the End of 2012

As of the end of this year, we will have lost FIVE MILLION homes to foreclosure… and 10 MILLION MORE American households have faced the prospect of foreclosure since the crisis began during the third quarter of 2006.  Add to those the numbers the 5.3 MILLION NOW in the foreclosure pipeline, meaning they have already received a foreclosure notice or are over 30 days delinquent… and 3.3 MILLION of them are over 90 days delinquent or already in pre-sale inventory.

Then stop to consider that there are only 50 million homes carrying a mortgage in this country… and then do the math.  You shouldn’t need a calculator to know that the answer to any equation comes out CRISIS of historical proportion no matter what the talkers are talking about today.

In addition, it’s interesting that no one wants to talk about the COMPLETED BANK REPOSSESSIONS continuing at the rate of about 50,000 A MONTH, with foreclosure starts at 100,000 A MONTH.

But, the housing market is recovering, the housing market is recovering… well yada, yada, yada and a blah, blah, blah.

First Time Buyer Demand Falling

One of the only legitimate sources of demand for homes in this country would be that provided by first time buyers.  Think about it… they can’t be underwater because they don’t already own a home.  So, with at least a third of the country’s homeowners underwater and unable to move, our first time buyers are about the only growing demographic we’ve got, since we’re certainly not growing investors in any sort of hurry.

The latest edition of Fannie Mae’s Housing Insights, however, in which Fannie economists examined the data shows that the decline in the homeownership rate over the last four years has been particularly pronounced for young households.

According to Mortgage News Daily on November 15, 2012, “five years after the start of the housing bust American households continue to shift from homeownership to being renters.”  And why this would be any sort of surprise to anyone is beyond me.

The particularly bad news is that homeownership among the younger demographic groups dropped the most in each of the last five years.  In fact, overall homeownership among those between age 25-44 has declined at double the rate of the overall decline.

The only age group that did not seen a decline in homeownership in 2010 and 2011 is the age 75+ group.

But don’t worry, I’m certainly confident that this country’s OCTOGENARIANS (people in their 80s, just to make sure everyone’s with me) are going to save our housing market… so attention all talkers, better get ready to start talking about that.

Why are young people not buying homes like they used to?  Well, gee… let’s see if we can’t figure that out without having to look anything up, shall we?

Well, there’s the issue of student loan debt, which has become such a scam that I may have to devote an entire blog to it in the near future.  And then there’s the need for 20 percent down payments and 760 credit scores… unless we’re talking FHA loans, in which case we’re talking about 20 percent defaults and increasing insurance premiums and tightening underwriting requirements.

Oh, something else… there’s the relatively higher unemployment numbers among the younger demographics, twice as high as the average in many areas.  And then there’s the fact that young people AREN’T STUPID, so one might imagine that since AT LEAST 20 MILLION of them have watched their elders either lose homes or be at risk of losing homes, it might just be that many are in no hurry to repeat the apparent mistakes of the past.

Ya’ think?  Or do the MORONS reading this think we need to conduct a study to figure that out too?

Being Underwater

Consider the chart from Zillow below to get an idea of how the underwater problem can do nothing but significantly reduce future demand.  Zoom in on it to read it closely, but if you don’t have your glasses, the blue bars are underwater homes by city, and the red bars are delinquent underwater homes by city.

And that’s what Zillow thinks.  Just imagine what the truth of the situation is, because you know it’s not better than Zillow’s.  Just by factoring in the percentage underwater when including real estate sales commissions would take all of those numbers up by 6 percent, right?  Yes, right.

Foreclosures to Come

Another factor that makes talkers mute and much of their data moot is how state laws have created markets where foreclosures are delayed and hanging like the Sword of Damocles over their respective markets.

In case you’re a little rusty on your legends from classical Greek culture, Roman philosopher Cicero uses this story to reach the conclusion that virtue is all you need to live a happy life, when he asks the question, “Does not Dionysius seem to have made it sufficiently clear that there can be nothing happy for the person over whom some fear always looms?”

Look at the chart below to see how Nevada’s new law, AB 284, which took effect in October of 2011, has impacted servicers filing Notices of Default.  It’s not a chart showing problems being solved, it’s just a study in kicking the proverbial can down the road.

As Phillip Gusterson, writing for Seeking Alpha on November 27th, said in his article titled, “Dark Forces Manipulate the Housing Market, “AB284 has dramatically reduced foreclosures in Las Vegas. The result is a lesson in basic economics, with a drop in supply leading to an increase in prices. But what is clear to everyone is that the supply is artificially constrained, and a second lesson in economics could be around the corner: an increase in supply will lead to lower prices.”

He goes on to point out what should be obvious, “AB284 did not remove the need to foreclose on these properties, it just removed the ability to do it, so now one year later we have at least 24,000 units that should have been filed on, but were not because lawmakers in a run up to a general election decided to manipulate the market.”

I don’t agree with everything Mr. Gusterson has to say, but on that point there’s absolutely no chance that he’s even a little bit wrong.  When supply goes down, prices always go up… and the reverse is also true… welcome to Econ 101.

And if that fundamental truth wasn’t enough to cause those thinking that Las Vegas is already at the bottom of the market to pause, Gusterson also points out that, “Las Vegas also has a disproportionate share of ARM mortgages. When interest rates inevitably rise that this will cause a further wave of defaults just as the market shows signs of genuine recovery stimulated by economic growth.”

Notices of Default are increasing steadily over the last few months, however,  which just shows that the banks will ultimately figure out how to foreclose within the current legislative requirements.  As Gusterson’s article opines, “… it does seem logical that the significant market force of 75,000 delinquents will eventually overcome the barriers that politicians throw up to stem the tide.”

He figures that banks will use some combination of “improved administration, short sales, bulk note sales, bulk REO sales, and judicial foreclosures to operate within the post-AB284 environment to work through the foreclosures, and that the post-MERS environment will encourage them to increase the rate of foreclosure.”  

Once again, he is most assuredly correct, but he may be missing one additional factor, which is that the legislature, all too aware of AB 284’s draconian and utterly paralyzing effect on the market, may very well act to weaken the law in order to make it somewhat easier to foreclose in the future.

Lastly, consider that in 2102, according to the Greater Las Vegas Association of Realtors, almost 55 percent of all homes sold in Southern Nevada were bought as ALL CASH deals.  And you don’t have to be any sort of economic expert to realize that we just don’t have anywhere near enough people able to pay cash for homes to create any sort of actual recovery.  (I’m not going to bother sourcing that statement, if you don’t instinctively know it to be the case, you’re an idiot and reading the wrong blog, so scat. I have no time for you.)

What Is Going Up?

The only segment of any housing market going up is at the bottom of the market, where investors are prone to bid against each other, afraid that they’ll lose out.  It’s the same sort of greedy mentality that takes hold at auctions, where I’ve seen people pay more for things than they would have to if buy them at their retail price.

The simple fact is that the markets aren’t acting rationally, and I’m sure part of it is that some of the talking causes irrational things to happen.  For example, Dr. Housing Bubble, who follows Southern California’s housing market better than anyone, points out that while “home sales are up by 8 percent year-over-year, during the same period, the median home price fell by 3.7 percent.”

That’s just great… as demand goes up, price falls?  Try answering questions on an economics exam that way and you’ll fail the test sure as shootin’.  Again, according to Dr. Housing Bubble…

“If you want to see delusion in action take a look at Zillow’s “make me move” option and you will see it in full force.  Even with mortgage rates at record low prices and very generous products like FHA loans that only require 3.5 percent down, the market seems to be moving lower in mid-tier to upper-tier areas.”

Well, obviously that part of the market needs a stern talking to, wouldn’t you say?  Get to work talkers… I expect to see some yabbering and in a hurry.

Talk is Cheap

The fact that there are properties at the very bottom that appear to have increased in price by a few points is no indication that housing is recovering.

Remember, the underwater problem is just as it was, so demand can’t increase because half the market can’t move.  And remember that, for the most part, no one is selling their home unless they have to, so the supply is reduced because no one wants to compete with foreclosures and short sales when selling their home into what is already the worst housing market in 70 years.

If people were selling, without demand increasing, then prices would fall even further as the impact of increased supply and competition could produce no other outcome. And there’s just nowhere that demand can come from as long as we’re pretending that our economy and housing market are recovering, and therefore doing NOTHING about ANYTHING.

Our situation related to unemployment in this country is nothing short of horrific… we’ve got at least 5.5 MILLION people out of work for over six months.  In California, the published rate is over 11 percent, and that’s not even a fully loaded number.  And we haven’t created anything but part-time and minimum wage jobs over the last four years, so even if working, EVERYONE is making less.

What’s amazing to me is that we’re not even pressuring our elected officials to do anything.  Other than a few Occupy people camping on lawns until they get arrested, the only thing we’re doing is kvetching on Facebook and pacing through sleepless nights.

Here’s an excerpt from a Rolling Stone article from last June, written by Jeff Tietz…

To aid Santa Barbara’s large homeless population, local activists launched the Safe Parking program and since the Great Recession began, the number of lots and participants in the program has doubled. By 2009, formerly middle-class people like Janis Adkins had begun turning up – teachers and computer repairmen and yoga instructors seeking refuge in the city’s parking­ lots. 

Safe-parking programs in other cities have experienced a similar influx of middle-class exiles, and their numbers are not expected to decrease anytime soon. 

It can take years for unemployed workers from the middle class to burn through their resources – savings, credit, salable belongings, home equity, loans from family and friends. 

Some 5.4 million Americans have been without work for at least six months, and an estimated 750,000 of them are completely broke or heading inexorably toward destitution. In California, where unemployment remains at 11 percent, middle-class refugees like Janis Adkins are only the earliest arrivals. “She’s the tip of the iceberg,” says Nancy Kapp, the coordinator of the Safe Parking program. 

“There are many people out there who haven’t hit bottom yet, but they’re on their way – they’re on their way.”

Afraid?  Terrified?  Yeah, well me too. 

It’s happening all around us, most of us see the signs of the cracks widening every day.  But too many of us are still in denial, they don’t want to talk about it, they’d rather just listen to the happy talk crowd who are constantly trying to talk our economy back to health.

My wife noticed that I didn’t bother to vote this year and asked me why.  I replied that for all our president is doing, I would have been okay with leaving the position open for the next four years… you know, just not fill it until someone worth voting for comes along.  But it now occurs to me that President Obama fits in  perfectly with what’s going on.  If talking the economy up will somehow work, then I’ve changed my mind and he’s the perfect guy for that job.  (Hahaha… get it?)

Here’s the real deal, however… while you might be able to get ME up by talking to me, housing isn’t going anywhere but sideways and down no matter what anyone says.  Bet on it.

Mandelman out.