The Waltz of the Zombie Banks
It’s the same everywhere. The banks are keeping houses off the market to trick people into believing that prices have hit bottom. But prices haven’t hit bottom, in fact, they still have a long way to go. So, what’s going on here; what do the banks hope to gain by withholding supply? Here’s a clip from an article in OCHousing News that helps to explain:
“Lenders hope they can solve all their problems by making the housing market hit bottom. If prices bottom, people who bought at the bottom gain equity with rising prices, and they in turn reignite the move-up market which will allow the banks to sell their high-end shadow inventory. Further, rising prices makes for fewer short sales and fewer foreclosures and distressed sellers become equity sales. Rising prices would be a panacea for lenders, which is why the full weight of our government and the federal reserve is working to make house prices go back up. …. they hope they can create an artificial bottom and momentum to carry them through the liquidation of their distressed inventory.” (“11.8% of all loans at least 30 days past due or in foreclosure”, OCHousing News)
Bingo. The banks want to make it appear as though prices have stabilized, because, once they stabilize, then potential buyers will emerge from their bunkers and go on another spending spree. That, in turn, will allow the banks to offload more of their distressed properties at minimal cost. That’s why they’re withholding supply, because it increases demand and buoys prices. But, keep in mind, that “existing inventory” only represents a small portion of the total number of homes that will eventually need to be sold, so analysts who make their calculations based on that number are grossly understating the size of the problem.
Presently, inventory levels are nearly back to normal at roughly 2.37 million units. But what about the vast shadow inventory of distressed properties? Depending on the analyst, that sum is somewhere between 6 to 11 million units. What effect will that have on prices?
Well, if we apply normal supply-demand dynamics, then prices will go down sharply.
Now take a look at this housing graphic and pay special attention to the shadow inventory chart.
As the graph indicates, the current real estate meltdown is worse than during the Great Depression; 3 million foreclosures in 2010 alone, 8 million Americans are presently delinquent on their mortgages, and sales have dropped 80% from 2005 to 2011. It’s a disaster, and it was entirely engineered by the banks and their enablers in Washington. Now the banks are onto their next swindle, faking the numbers to put a floor under prices. They plan to achieve their goal by releasing homes in dribs and drabs so the market never fully-clears, so homeowners are never able to rebuild their equity, and so the 6-year long crisis drags on to eternity. That’s what these zombie institutions are up to. Here’s a clip from Bloomberg:
“In the Miami area, March listings declined 34 percent from a year earlier and prices rose for the fourth straight month, with condos jumping 46 percent and single-family homes gaining 13 percent, according to the Miami Association of Realtors….
The share of home loans in the foreclosure process increased to 4.39 percent in the first quarter from 4.38 percent in the previous three months, indicating that lenders are limiting repossessions, according to the Mortgage Bankers Association data released yesterday….
“Lenders are proceeding with caution and want to avoid risk,” Blomquist said. “They’re not in a rush to foreclose right away.” (“Foreclosures Plunge to Five-Year Low in U.S.: Mortgages”, Bloomberg)
Of course, there’s no “rush to foreclose right away.” That’s the plan, isn’t it; to manipulate the market by controlling supply? Get a load of this article in The Republic:
“More than 80 percent of the repossessed homes in the Portland area are off the market, The Oregonian newspaper reports …..at least part of the delay is likely a bookkeeping maneuver because the repossessed homes haven’t been marked down to their new market value….Another reason to delay selling the backlog is because home prices might crumble if a wave of properties hits the market at the same time.” (“Portland-area lenders slow to release shadow housing inventory”, The Republic)
“More than 80 percent …are off the market.” How do you like them apples? This is such a brazen ripoff, it’s almost laughable! And the banks are pulling the same swindle in Phoenix according to Abigail Field over at Firedog Lake. Here’s a blurb from her article:
“Phoenix: RealtyTrac identifies 6,611 “bank-owned” properties there. An Arizona realty website lists only 275 for sale.” (“Bankers Are Still Wrecking Housing Market Fundamentals”, Abigail Field, Firedog Lake)
Repeat: There are 6,600 distressed homes that should be “for sale” in Phoenix alone, but less than 300 of them are actually on the market.
Why? Because the banks are trying to pull the wool over everyone’s eyes, that’s why.
And there’s more, too. The banks have been keeping these mortgages on their books at artificially high prices (to hoodwink their shareholders) This creates a problem for them when they want to sell the property because, when the sale is finalised, then the bank has to write down the loss. Now that might not seem like a big deal when you’re talking about 2 or 3 houses, but when you’re buried under millions of overpriced mortgages, then you’ve got big problem. In fact, if the banks were to dump all their excess inventory on the market right now, they’d be busted, no doubt about it. So, they’re not going to do that, right? Instead, they’re going to drag this thing out until Resurrection Day.
Did you know that it takes 31 months for a loan to be liquidated once it becomes 60 days delinquent?
31 months for chrissakes. Now, you tell me, if Mr. Dipstick Bankster really wanted to evict your sorry ass faster than 31 months, don’t you think he’d be able to do it?
You bet, he would. After all, the banks own the government, the courts, the cops, the whole shooting match. If they really wanted to boot you out of your home, they could do it without lifting a finger. But, they don’t want to do that, because they need some poor schmuck to cut the lawn, and fix the roof, and flush the toilet. That’s why they’re letting millions of people stay in their homes for free, because they need “live in” janitors to keep the property up while they whittle away at their stinkpile of homes. But, once they get that backlog down to a manageable size, then “Watch Out”, because you’ll be out-on-your-ear!
Do you have any idea of how much it costs the banks to keep people in their homes who aren’t currently making payments?
$60 billion a year, 5 percent of GDP. That ain’t chump change either, but what choice do they have?
None. They have no choice at all, not unless they want to see the walls punched in, the plumbing stripped out, and the shrubbery growing up around the rooftop, because that’s what happens when houses are abandoned for a year or two; they deteriorate into a heaping pile of crap.
Now check this out from CNBC:
“Foreclosure activity in April fell nationally to the lowest level since the summer of 2007…. Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, fell 5 percent in April from March, according to a new report from RealtyTrac, and are down 14 percent from April of 2011.” (“Foreclosure activity in April fell nationally to the lowest level since the summer of 2007″, CNBC)
Remember when everyone predicted that foreclosure filings were going to surge after the robo signing deal was wrapped up? It didn’t happen, did it?
You know why? Because the banks figured out how to sock-it-to John Q. Public one more time by fiddling housing inventory to draw more buyers into their mortgage snare.
This is from an article in the Wall Street Journal:
“… Although banks initiated fewer foreclosures in the first quarter than at any time since 2007, the share of loans in the process remains high…. The national foreclosure rate remains elevated largely because of states that require banks to process foreclosures through the courts. In these so-called judicial states, banks have moved to take back homes very slowly since judges uncovered record-keeping abuses in foreclosure processing 18 months ago. Banks have encountered fewer hurdles in nonjudicial states….(“Foreclosures Show No Sign of Decline”, WSJ)
Don’t get hung up in the “judicial-non judicial” BS. It’s all just smokes and mirrors. What difference does it make?
We already know that 12 million people are underwater RIGHT NOW. Nearly 24 percent of all homeowners owe more on their mortgage than their house is worth. A lot of these people are just going to throw in the towel and vamoose; what do they care? That’s going to add millions more homes to the already-bulging backlog. But even if it didn’t, the humongous overhang that already exists would still be enough to drive prices down another 10 or 15 percent. In fact, the WSJ reluctantly intimates this further along in the same article. Here’s the clip:
“While there are signs that home prices are beginning to rise in more markets, including hard-hit Phoenix and Miami, those communities with a large “shadow” inventory of potential foreclosures could face renewed price pressure once banks take back and list for sale more of those properties.”
Huh? So after all that rigmarole about “judicial-non judicial” the WSJ finally admits the truth; that once the banks “list ..more of the properties” that they’re holding onto, then prices are going to take a nosedive. Why didn’t they just say-so to begin with?
So, the question is: When are the banks going to put more of their distressed inventory on the market?
Answer: Who knows? That’s the advantage of owning the government outright; there’s no pressure to do anything. The banks can take their own sweet-time and drag this depression out for ever. And, that’s probably what they’ll do, too.
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 firstname.lastname@example.org.