FacebookTwitterGoogle+RedditEmail

Tells the Facts, Names the Names

by MIKE WHITNEY

The housing market is now in full retreat. This week, the Commerce Department reported that sales of new homes plunged nearly 17 percent in February to a 250,000 annual pace. That’s a record low. At the same time, the median price fell 8.9 percent from February of last year. The news comes on the heels of Monday’s equally-dismal report that showed existing home sales dropped 9.6 percent in February. These are Depression era stats and builders know it which is why they’re unloading homes as cheaply as possible. It’s been 5 years since housing prices peaked in July 2006, and the market is still nowhere near the bottom. In fact, the rate of decline is accelerating. This is shaping up to be the worst spring in history.

If you want to know where the housing market is headed, keep an eye on inventory. That’s the whole ball of wax. When inventory balloons, prices go down. At present, inventory is rising (8.9 month’s supply) which means that prices have further to fall. But these figures don’t include the vast shadow inventory that the banks are holding off-market. Many analysts think there could be another 5 to 6 years of inventory stacked up on bank’s balance sheets. The Wall Street Journal’s Mark Whitehouse takes an even grimmer view. He thinks the backlog could be in the vicinity of 9 years. Here’s a clip from his article in the WSJ:

“Banks’ vast pile of foreclosed homes doesn’t appear to be diminishing. That’s a troubling sign for the future of the housing market.

Back in April, this column tallied up all the foreclosed homes sitting in banks’ inventory, as well as the “shadow” inventory of homes in the foreclosure process or on which owners had missed at least two mortgage payments. At the time, we reported that at the current rate of sales, it would take 103 months to unload it all.

Over the past six months, that number has actually risen. Banks managed to pare down the shadow inventory, but largely by taking possession of foreclosed homes. As of September, they owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. Grand total: 107 months of inventory.

The numbers aren’t exactly comparable to the April analysis, as the providers of data have changed. The inventory data now come from RealtyTrac, the shadow inventory data from LPS Applied Analytics, and the sales data from Core Logic. But no matter how you slice it, the housing market faces almost nine years of foreclosure hangover…..

The mountain of foreclosed homes casts a long shadow.” (“Number of the Week: 107 Months to Clear Banks’ Housing Backlog”, Mark Whitehouse, Wall Street Journal)

If this glut of homes was suddenly dumped onto the market, prices would go into freefall and the banks would be swallowed up by the red ink. That would force the Fed would to initiate another bailout. (which Bernanke definitely does not want) So the banks are releasing homes in dribs and drabs while concealing the number of non-performing loans they’re holding from shareholders. It’s all a giant coverup.

This is from Bloomberg:

“The number of homes in foreclosure rose to a record 2.2 million in January, according to Lender Processing Services Inc. in Jacksonville, Florida. About 23 percent of homeowners with mortgages had negative equity in the fourth quarter, meaning their home-loan balances were higher than the value of their properties, CoreLogic Inc. said in a March 8 report.”

Prices are falling, home equity is drying up, foreclosures are at record highs, and the incentive to “walk away” and let the bank take the mortgage-loss has never been greater. All of the mortgage modification programs have been a total failure. The Fed purchased $1.7 trillion of garbage mortgage-backed securities (MBS) from the banks, but hasn’t lifted a finger to help homeowners. All of the pain from the $8 trillion housing bubble has all been shunted onto the backs of ordinary working people.

Present policy continues the same pattern of relentless class warfare. Since Bernanke announced his bond purchasing program (QE2) in November, the Fed has bought $440 billion of US Treasuries notes from the banks. This has pushed equities up nearly 15 percent which (according to the Fed’s flow of funds report) makes it look like consumers are rebounding from the deep losses they experienced during the financial crisis. But the figures are misleading. The wealthiest 5 percent of Americans control more than half of all the nation’s financial assets whereas the bottom 50 percent have almost none. So the uptick in stocks doesn’t improve their situation nearly as much as a boost in home values. When housing prices go up, homeowners are more apt to spend which increases economic activity and stimulates growth. The New York Fed just released a working paper last week which showed that “Between 2000 and 2007, consumer borrowing added an annual average of about $330 billion to the cash they could spend; by 2009, consumers were diverting $150 billion away from potential spending in order to reduce the debts they had built up. This represents a remarkable $480 billion reversal in cash flow in just two years.” (NY Fed)

So housing prices are critical to getting the economy back on track. But in a time when all the gains in productivity are upwardly-transferred to management, workers are more dependent than ever on rising asset values in order to increase their consumption. That’s why consumer spending will stay flat until housing prices go up.

Obama’s unwillingness to seriously address the housing crisis has extended the period of household deleveraging and added to economic sluggishness. He needs to force the banks to negotiate cramdowns (principle reduction) and keep more people in their homes. That’s Job#1. Then he needs to boost fiscal stimulus to lower unemployment and increase demand for housing. The Fed’s quantitative easing (QE2) can’t fix this problem. It can buoy stocks and lower long-term interest rates, but it can’t create jobs, patch household balance sheets, or stabilize housing prices. This week’s plunging new home sales proves that Bernanke’s strategy is a flop. It’s time to move on to Plan B.

MIKE WHITNEY lives in Washington state. He can be reached at: fergiewhitney@msn.com.

 

 

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

Weekend Edition
May 06, 2016
Friday - Sunday
Dave Wagner
When Liberals Run Out of Patience: the Impolite Exile of Seymour Hersh
John Stauber
Strange Bedfellows: the Bizarre Coalition of Kochs, Neocons and Democrats Allied Against Trump and His #FUvoters
Rob Urie
Hillary Clinton and the End of the Democratic Party
Joshua Frank
Afghanistan: Bombing the Land of the Snow Leopard
Bill Martin
Fear of Trump: Annals of Parliamentary Cretinism
Doug Johnson Hatlem
NYC Board of Elections Suspends 2nd Official, Delays Hillary Clinton v. Bernie Sanders Results Certification
Carol Miller
Pretending the Democratic Party Platform Matters
Paul Street
Hey, Bernie, Leave Them Kids Alone
Tamara Pearson
Mexico Already Has a Giant Wall, and a Mining Company Helped to Build It
Paul Craig Roberts
Somnolent Europe, Russia, and China
Dave Lindorff
Bringing the Sanders ‘Revolution’ to Philly’s Streets
Margaret Kimberley
Obama’s Last Gasp Imperialism
Carmelo Ruiz
The New Wave of Repression in Puerto Rico
Jack Denton
Prison Labor Strike in Alabama: “We Will No Longer Contribute to Our Own Oppression”
Jeffrey St. Clair
David Bowie’s 100 Favorite Books, the CounterPunch Connection
David Rosen
Poverty in America: the Deepening Crisis
Pepe Escobar
NATO on Trade, in Europe and Asia, is Doomed
Pete Dolack
Another Goodbye to Democracy if Transatlantic Partnership is Passed
Carla Blank
Prince: Pain and Dance
Gabriel Rockhill
Media Blackout on Nuit Debout
Barry Lando
Welcome to the Machine World: the Perfect Technological Storm
Hilary Goodfriend
The Wall Street Journal is Playing Dirty in El Salvador, Again
Frank Stricker
Ready for the Coming Assault on Social Security? Five Things Paul Ryan and Friends Don’t Want You to Think About
Robert Gordon
Beyond the Wall: an In-Depth Look at U.S. Immigration Policy
Roger Annis
City at the Heart of the Alberta Tar Sands Burning to the Ground
Simon Jones
RISE: New Politics for a Tired Scotland
Rob Hager
After Indiana: Sanders Wins another Purple State, But Remains Lost in a Haze of Bad Strategy and Rigged Delegate Math
Howard Lisnoff
Father Daniel Berrigan, Anti-war Hero With a Huge Blindspot
Adam Bartley
Australia-China Relations and the Politics of Canberra’s Submarine Deal
Nyla Ali Khan
The Complexity of the Kashmir Issue: “Conflict Can and Should be Handled Constructively
Josh Hoxie
American Tax Havens: Elites Don’t Have to go to Panama to Hide Their Money–They’ve Got Delaware
Ramzy Baroud
The Spirit of Nelson Mandela in Palestine: Is His Real Legacy Being Upheld?
Alli McCracken - Raed Jarrar
#IsraelSaudi: A Match Made in Hell
George Wuerthner
Working Wilderness and Other Code Words
Robert Koehler
Cowardice and Exoneration in Kunduz
Ron Jacobs
Psychedelic Rangers Extraordinaire
Missy Comley Beattie
It’s a Shit Show!
David Macaray
Our Best Weapon Is Being Systematically Eliminated
Colin Todhunter
Future Options: From Militarism and Monsanto to Gandhi and Bhaskar Save
Binoy Kampmark
The Trump Train Chugs Along
John Laforge
Dan Berrigan, 1921 – 2016: “We Haven’t Lost, Because We Haven’t Given Up.”
Tadeu Bijos
The Wants of Others
Norman Trabulsy Jr
John Denver and My 40th High School Reunion
Charles R. Larson
Being Gay in China, Circa 1987
David Yearsley
Skepticism, Irony, and Doubt: Williams on Bach
FacebookTwitterGoogle+RedditEmail