Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! We only ask one time of year, but when we do, we mean it. Without your support we can’t continue to bring you the very best material, day-in and day-out. CounterPunch is one of the last common spaces on the Internet. Help make sure it stays that way.
FacebookTwitterGoogle+RedditEmail

The Housing Shell Game: Prices Up, Ownership Down

by MIKE WHITNEY

Why are housing prices rising when the homeownership rate has dropped to its lowest level in 18 years?

Actually, it’s not as confusing as it sounds. The Fed’s low interest rates have triggered a flurry of homebuying by Private Equity firms and other speculators which has reduced already-tight supply and pushed up prices.  Of course, there is a downside to all this speculation, which is that real, “organic” demand from ordinary working people looking for a place to live, has dropped off sharply. That’s why the homeownership rate is in the dumps.  It’s also why existing homes sales declined 0.6 percent in March and “the volume of purchase applications is at levels last seen in 1998”,   because as prices edge higher, more people are opting to rent rather than own.  Who can blame them?

Five Star Institute economist Mark Lieberman’s has done considerable research on the homeownership rate by combing through the US Census Bureau report. He found that:

“The number of housing units held off the market in the first quarter though was 7,609,000 up from 7,299,000 in the fourth quarter and but down from 7,633,000 a year ago.” (“Homeownership Rate Drops to 18-Year Low” DS News)

Can you believe it? So the banks are keeping more than 7 million homes off the market to reduce listings, create the illusion of “scarcity”, and push up prices.  And just look at the numbers. They haven’t budged in the last year, which means that things aren’t really getting better at all. It’s a complete hoax, in fact, it might be the biggest charade of all time.

That’s why I still think the housing rebound is fake and that eventually prices will return to earth. Ultimately, a sustainable housing recovery depends on 3 things: Solid wage growth, low unemployment, and easy access to credit. Presently, all three of these are weak, which means the current surge in prices won’t last.

Surprisingly, Fitch Ratings Agency agrees with me, or so it would seem judging by a recent article in DS News titled  “Fitch: Recent Price Gains May Not Be Here to Stay.”  Here’s a clip:

“While some might be rejoicing at the recent rising home prices and rising home sales seen across the nation, Fitch Ratings “still views these gains cautiously.” In fact, the agency predicts price gains will slow and perhaps even reverse over the next year. …

“While rising prices and sales volumes suggest a recovery, they are not moving in sync with key economic indicators that would otherwise support a sustainable price level”…

Persistent low interest rates, little new construction, and formerly-reluctant buyers are bringing action to the market, but Fitch warns this burst in demand will not last.”  (“Fitch: Recent Price Gains May Not Be Here to Stay“, DS News)

And Fitch isn’t the only naysayer, Yale professor Robert Shiller is skeptical, too. Shiller  maintains that  “we might not see a really major turnaround in our lifetimes”. Shiller’s reaction may surprise many readers since his own Case-Shiller home price index showed (just this week) that prices rose a stunning 9.3 percent in the last year. That’s hardly reason for pessimism, is it?    Even so, just hours after the report was released, Shiller appeared on the Daily Ticker where he said he thought that,  “Home prices will remain relatively stagnant for the next 10 years”. Here’s more from the same interview:

“Shiller says the housing market is operating in an “abnormal economy” where the Federal Reserve is buying $40 billion worth of mortgage securities and $45 billion worth of Treasury notes each month. This has driven mortgage rates to record lows.

The Fed will eventually stop buying these securities, says Shiller, and mortgage rates will rise…

When asked where this all leaves the housing market 10 years from now, Shiller says home prices will be “about where they are now” after adjusting for inflation.” (See the whole interview here: “Home Prices Will Remain Relatively Stagnant For Next 10 Years“, Daily Ticker)

So, yes, the vast majority of analysts and experts say the housing recovery is real, but there are still a few contrarians, and their reasoning is sound. The fundamentals are weak, and they could get weaker still as the budget cuts take hold and the economy shifts into low-gear.

For the last year or so, prices have been driven by low rates, inventory suppression, and a surge in investment. In the hotter markets, investors have accounted for more than 30 percent of all sales. But that  won’t continue through 2013, mainly because yield-seeking speculators are not making the money they figured they would buying up bank-owned properties (REOs) and renting them out. As analysts at Goldman Sachs recently pointed out: “Rental yields on single-family homes, conditional on the current market prices, are compressed. Even among the 10 metro areas where our estimated 2013 rental yields are the highest, the average rental yield is only 5%.”

So, even the best deals are only netting 5 percent. That’s not enough to wet the beak of the big players who thought they’d be raking in the moolah.  Now that the price of distressed properties has skyrocketed,  the Wall street guys are going to make even less, which means they’ll probably reduce their spending on housing and move on to more lucrative areas of investment. It might not happen tomorrow, but–as prices go up and profit margins narrow–it will happen. And that will leave the banks in the same situation they find themselves today, with millions of distressed homes in the pipeline and a dwindling pool of buyers.

Now take a look at this blurb from Moody’s Ratings agency that conflicts with the Census Bureau report, but sheds a little light on what’s going on behind the scenes:

“Nationally, the market holds about 3 million homes in serious delinquency or foreclosure—which is about 3 times the normal level, according to Moody’s.

…..

Almost 40 percent of delinquent loans have been delinquent for three or more years, which translates to much greater losses than on loans in delinquency for shorter time periods.” (“Moody’s: Home Prices to Increase, Loss Severities to Remain High“, DS News)

See? It’s all a big shell game. Nearly half of “the delinquent loans have been delinquent for three or more years”, and yet, the banks haven’t foreclosed. Why is that? It’s because they want to suppress inventory to prop up prices.

On top of that, the banks have enlisted Obama to provide them with a stealth bailout via home modification programs to keep underwater homeowners out of foreclosure until the banks are ready to take action. Take a look at this eye-popper from DS News:

“Starting July 1, large numbers of non-paying borrowers will have the opportunity to modify existing mortgages through a more streamlined process….

According to the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac will offer “a new, simplified loan modification initiative” to borrowers who are at least 90 days late with their mortgage payments. Modifications can include a lower rate, a loan term stretched to 40 years and principal forbearance in some cases.

“The loan,” says FHFA, “must be owned or guaranteed by Fannie Mae or Freddie Mac. Homeowners must be 90 days to 24 months delinquent, and have a first-lien mortgage that is at least 12 months old….

FHFA says the “key difference is that borrowers will not be required to document their hardship or financial situation, but will be able to accept a Streamlined Modification Offer by simply making the trial period payments and agreeing to the terms of the modification…. the bottom line is that documentation is no longer required.”  (“DeMarco Disappoints with New Streamlined Mod Program”, DS News)

Doesn’t this prove that Wall Street “owns” Obama?  Just think about it:  “No doc” refis for underwater borrowers who have not made a mortgage payment for 2 years? And President Dumbass wants the US gov to guarantee these loans? Have you ever heard of anything more ridiculous in your life?

This is why housing prices are going up, because corrupt, carpetbagging public officials and their price-fixing allies at the Fed have moved heaven and earth to do the banks’ bidding and to make sure they don’t lose one red cent on their garbage stockpile of distressed homes.

The whole system is a joke.

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. Whitney’s story on Bernanke’s Subprime Bonanza appears in the April issue of CounterPunch magazine. 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.

More articles by:

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

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

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
Colin Todhunter
A System of Food Production for Human Need, Not Corporate Greed
Brian Cloughley
The United States Wants to Put Russia in a Corner
Guillermo R. Gil
The Clevenger Effect: Exposing Racism in Pro Sports
David Swanson
Turn the Pentagon into a Hospital
Ralph Nader
Are You Ready for Democracy?
Chris Martenson
Hell to Pay
Doug Johnson Hatlem
Debate Night: Undecided is Everything, Advantage Trump
Frank X Murphy
Power & Struggle: the Detroit Literacy Case
Chris Knight
The Tom and Noam Show: a Review of Tom Wolfe’s “The Kingdom of Speech”
Weekend Edition
September 23, 2016
Friday - Sunday
Andrew Levine
The Meaning of the Trump Surge
Jeffrey St. Clair
Roaming Charges: More Pricks Than Kicks
Mike Whitney
Oh, Say Can You See the Carnage? Why Stand for a Country That Can Gun You Down in Cold Blood?
Chris Welzenbach
The Diminution of Chris Hayes
Vincent Emanuele
The Riots Will Continue
Rob Urie
A Scam Too Far
Pepe Escobar
Les Deplorables
Patrick Cockburn
Airstrikes, Obfuscation and Propaganda in Syria
Timothy Braatz
The Quarterback and the Propaganda
Sheldon Richman
Obama Rewards Israel’s Bad Behavior
FacebookTwitterGoogle+RedditEmail