Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! We only shake you down once a year, but when we do we really mean it. It costs a lot to keep the site afloat, and our growing audience, well over TWO million unique viewers a month, eats up a lot of bandwidth — and bandwidth isn’t free. We aren’t supported by corporate donors, advertisers or big foundations. We survive solely on your support.
FacebookTwitterGoogle+RedditEmail

The Housing Double-Whammy

by MIKE WHITNEY

The nation’s biggest lenders are doing everything they can to reverse the slide in housing prices and put the market back on solid footing. And they’ve had some success, too. In Maricopa County, for example, where prices on some homes dropped more than 60 percent, a housing revival is underway thanks to the persistent manipulation of the banks. In the last year, the median price of a Phoenix-area home increased by 29 percent making Maricopa County the hottest housing market in the country. (Average home prices in that region are up 11.5% since May 2011.) The cheerleading media would like you to believe that the surge in prices is due to shrinking inventory which slipped 33% in the last year. But that’s not it at all. The real reason is that the banks are withholding distressed property which is pushing the average price of a house higher. In the last year, the banks have slashed the number of distressed homes they put on the market by 68%. Fewer severely-discounted houses, means higher median priced homes. That’s the “Phoenix miracle” in a nutshell.

The reason the banks are engaged in such blatant price-fixing is not to save Joe Homeowner from losing more equity on his property, but to prop up the value of billions of dollars of clunker mortgages in their loan book which have plunged more than 32% since the bubble burst in 2006. That’s what this foreclosure shell-game is really all about, preserving the illusion that the banks are solvent.

Of course, there’s a downside to higher prices too, which is that fewer people are able to buy homes. That’s why sales of single-family homes in the Phoenix-area fell 16 percent in June from a year ago and a whopping 22% month-over-month. Some of the experts expect this trend to accelerate as housing prices continue to firm-up. According to California-based analyst Mark Hanson,

“The Phoenix region is a leading indicator to other more ‘distressed’ regions that made up most of the dead-cat bounce in Q1 and Q2 housing.”….Hanson expects July existing home sales to come in at the lowest annualized rate of the year. … Hanson has been warning for months that a drop in distressed supplies would stem the rebound in home sales, and it did just that in May and June.” (“Home Improvement Shows Gains—But May Not Last”, Diana Olick, CNBC)

If Hanson is right, then July’s existing home sales report (next week) could be a real wake-up-call. Lower sales will prove that bank manipulation is, in fact, prolonging the downturn.

This is from Arizona State University’s W P Carey School of Business

“MONTHLY REPORT– – GREATER PHOENIX HOUSING MARKET – JUNE 2012”

“Foreclosure starts on single family and condo homes fell 14.9% between May and June 2012 …….

(And) Recorded trustee deeds (completed foreclosures) on single family and condo homes were down 14% between May and June 2012 and were down 56% from June 2011…”

There it is in black and white. The banks have slowed foreclosure starts to conceal the vast number of delinquent homeowners on their books while, at the same time, they’ve reduced the number of completed foreclosures by 56%. It’s the double whammy. There’s only one reason why a bank would not foreclose as fast as possible, that is, because it costs them more money to do so. The banks figure that it’s cheaper to let people stay in their homes without paying, then kick them out and push prices down further. It’s all about self interest.

As for existing inventory (Multiple Listing Service or MLS), the reason the numbers are down is because 11 million people are underwater on their mortgages and cannot sell at current prices without winding up deep in the red. Imagine you owed $400,000 on a house that is currently worth just $250,000. You’d stay put, right? Well, that’s what the 11 million people with negative equity are doing. They’re basically chained to their homes until prices rise. And, 11 million vastly underestimates the size of the problem, because the figure doesn’t take into account $800 billion in second liens which are also preventing stretched homeowners from moving. (These figures never appear in the data.) This is a real mess, mainly because (as Hanson notes) many of the homeowners that are underwater, would normally be repeat buyers, that is, people who usually move every 6 to 8 years. Repeat buyers are the heart-and-soul of the housing market because they  represent nearly half of all organic sales. Recently, first-time buyers and investors have made up the bulk of sales, but their numbers are not great enough to effect a strong recovery. Repeat buyers need to resume their traditional spending pattern, but that’s not going to happen until prices rise enough for them to sell their current home without taking a bath.

Rising prices are not particular to Phoenix. Prices are up in more than 70% of the markets across the country and for the very same reason, manipulation by the banks. Keep in mind, that there are currently 5.57 million loans either delinquent or in the foreclosure process, (according to Lender Processing Service’s June Mortgage Monitor) and that the delinquency rate is 7.2%. So there’s no shortage of distressed homes for the banks to foreclose on if they chose to do so. But with interest rates at zero (free money) and accounting regulations that allow the banks to fudge the real value of their stockpile of dogshit loans, there’s no reason for the banks to hurry things along. In fact, it’s better for them to goose prices by tweaking inventory even if it drags the downturn out for another half decade or so.

The banks have been so successful in turning things around, that it looks like some markets are already showing signs of overheating. That’s why–as we would expect–the number of distressed homes the banks are releasing in those markets is beginning to increase. According to ABC News: “The number of homes that received an initial notice of default — the first step in the foreclosure process — increased 6 percent in July compared to the same month last year, foreclosure listing firm RealtyTrac Inc. said Thursday.” So, presumably, in the hot markets, we can expect to see an uptick in bank-owned properties dumped on the market to boost sales and cool prices. My guess would be that the banks don’t want to see prices rise more than 1 or 2 percent year-over-year. That would maximize sales while stabilizing prices. It’s all central planning smoke and mirrors intended to lure more buyers back into the shark tank.

In my home town, Seattle, where housing prices lurched 2.64% higher month over month in June, foreclosure activity has suddenly “flipped from falling year-over-year to increasing year-over-year this month.” Notice of Trustee Sales is up 33.7% in the last month alone. This sudden reversal takes place in the same year that bank-owned share of total sales dropped from 23% to 9%.  In other words, the foreclosure spigot had been turned to “OFF” before the market started overheating. This is consistent with our theory that the banks now believe they can fine-tune their meddling to stabilize prices and maximize sales. Their goal is to find the “sweet spot” or –what one analyst called “the equilibrium that allows them to dispose of REO without crashing prices.”

Here’s a good summation from O.C. Housing News:

“The story of the housing bubble is really the story of unprecedented market manipulation by lenders, legislators, regulators and the federal reserve. Predicting how this all plays out is fraught with difficulty, not because the basic economics are hard to understand, but because there is no way to predict when one of the key players will change a policy, what that change will be, and how that change will effect the market.”

The only real threat to the banks’ strategy at this point is higher interest rates, but, as we all know, the Fed would rather crash the dollar and destroy the economy than lay a finger on the banks.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion. He can be reached at fergiewhitney@msn.com

COMING IN SEPTEMBER

A Special Memorial Issue of CounterPunch

Featuring recollections of Alexander Cockburn from Jeffrey St. Clair, Peter Linebaugh, Paul Craig Roberts, Noam Chomsky, Mike Whitney, Doug Peacock, Perry Anderson, Becky Grant, Dennis Kucinich, Michael Neumann, Susannah Hecht, P. Sainath, Ben Tripp, Alison Weir, James Ridgeway, JoAnn Wypijewski, John Strausbaugh, Pierre Sprey, Carolyn Cooke, Conn Hallinan, James Wolcott, Laura Flanders, Ken Silverstein, Tariq Ali and many others …

Subscribe to CounterPunch Today to Reserve Your Copy

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.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

September 29, 2016
Gilbert Mercier
Clinton vs Trump: Lesser of Two Evils or the Devil You Know
Tom H. Hastings
Manifesting the Worst Old Norms
George Ella Lyons
This Just in From Rancho Politico
September 28, 2016
Eric Draitser
Stop Trump! Stop Clinton!! Stop the Madness (and Let Me Get Off)!
Ted Rall
The Thrilla at Hofstra: How Trump Won the Debate
Robert Fisk
Cliché and Banality at the Debates: Trump and Clinton on the Middle East
Patrick Cockburn
Cracks in the Kingdom: Saudi Arabia Rocked by Financial Strains
Lowell Flanders
Donald Trump, Islamophobia and Immigrants
Shane Burley
Defining the Alt Right and the New American Fascism
Jan Oberg
Ukraine as the Border of NATO Expansion
Ramzy Baroud
Ban Ki-Moon’s Legacy in Palestine: Failure in Words and Deeds
David Swanson
How We Could End the Permanent War State
Sam Husseini
Debate Night’s Biggest Lie Was Told by Lester Holt
Laura Carlsen
Ayotzinapa’s Message to the World: Organize!
Binoy Kampmark
The Triumph of Momentum: Re-Electing Jeremy Corbyn
David Macaray
When the Saints Go Marching In
Seth Oelbaum
All Black Lives Will Never Matter for Clinton and Trump
Adam Parsons
Standing in Solidarity for a Humanity Without Borders
Cesar Chelala
The Trump Bubble
September 27, 2016
Louisa Willcox
The Tribal Fight for Nature: From the Grizzly to the Black Snake of the Dakota Pipeline
Paul Street
The Roots are in the System: Charlotte and Beyond
Jeffrey St. Clair
Idiot Winds at Hofstra: Notes on the Not-So-Great Debate
Mark Harris
Clinton, Trump, and the Death of Idealism
Mike Whitney
Putin Ups the Ante: Ceasefire Sabotage Triggers Major Offensive in Aleppo
Anthony DiMaggio
The Debates as Democratic Façade: Voter “Rationality” in American Elections
Binoy Kampmark
Punishing the Punished: the Torments of Chelsea Manning
Paul Buhle
Why “Snowden” is Important (or How Kafka Foresaw the Juggernaut State)
Jack Rasmus
Hillary’s Ghosts
Brian Cloughley
Billions Down the Afghan Drain
Lawrence Davidson
True Believers and the U.S. Election
Matt Peppe
Taking a Knee: Resisting Enforced Patriotism
James McEnteer
Eugene, Oregon and the Rising Cost of Cool
Norman Pollack
The Great Debate: Proto-Fascism vs. the Real Thing
Michael Winship
The Tracks of John Boehner’s Tears
John Steppling
Fear Level Trump
Lawrence Wittner
Where Is That Wasteful Government Spending?
James Russell
Beyond Debate: Interview Styles of the Rich and Famous
September 26, 2016
Diana Johnstone
The Hillary Clinton Presidency has Already Begun as Lame Ducks Promote Her War
Gary Leupp
Hillary Clinton’s Campaign Against Russia
Dave Lindorff
Parking While Black: When Police Shoot as First Resort
Robert Crawford
The Political Rhetoric of Perpetual War
Howard Lisnoff
The Case of One Homeless Person
Michael Howard
The New York Times Endorses Hillary, Scorns the World
Russell Mokhiber
Wells Fargo and the Library of Congress’ National Book Festival
Chad Nelson
The Crime of Going Vegan: the Latest Attack on Angela Davis
FacebookTwitterGoogle+RedditEmail
[i]
[i]
[i]
[i]