The Bottomless Pit

“There are many good reasons to believe that the 5.5 million foreclosures we have seen are barely halfway through their full course. The United States may end up with a total of 8-10 million foreclosures before we are finished.”

— Barry Ritholtz, The Big Picture

It all gets down to supply and demand. The banks have been keeping millions of homes off the market until a settlement was reached in the $25 billion robosigning scandal. Now that the 49-state deal has been finalized, the banks are preparing to put more of their of distressed homes up for sale. That will lead to lower prices and the next leg down in the 6-year long housing crisis.

According to Reuters, new foreclosures “begun by Deutsche Bank were up 47 percent from 2011. Those of Wells Fargo’s rose 68 percent and Bank of America’s, including BAC Home Loans Servicing, jumped nearly seven-fold — 251 starts versus 37 in the same period in 2011.”

So BofA, which unwisely purchased Countryside following the Crash of ’08, is scrambling to get its house in order by removing the deadwood from its balance sheet. Good luck with that.

In order to avoid a sudden plunge in prices–which would be devastating for bank balance sheets–the banks will continue to control the number of homes that are released onto the market. In 2011, existing home inventory shrunk by 20 percent year over year while the shadow backlog of distressed homes continued to grow in leaps and bounds. This shows that the banks are managing inventory to minimize their losses.

But even though “visible” inventory has shrunk by as much as 30 percent in some markets, housing prices have continued their downward trek, dropping roughly 4 percent in 2011. This reflects the truly dismal condition of the underlying economy that is wracked by high unemployment, flat wages, and soaring personal debt. Absent another round of fiscal stimulus, there’s little chance that housing sales
will rebound in 2012 despite historic low rates and myriad government loan modification programs.

The biggest problem facing housing now is that ordinary working people can’t make their monthly payments. An article in Reuters summed it up like this: “The subprime stuff is long gone,” said Michael Redman, founder of 4closurefraud.org. “Now the folks being affected are hardworking, everyday Americans struggling because of the economy.”

So what we’re seeing now is the knock-on effects from high unemployment, tight credit, shitty wages and deep protracted economic stagnation. This is a policy issue, but policymakers refuse to address it, so housing will bump along the bottom for years to come. Now take a look at this article in the Wall Street Journal:

“Delinquent mortgage borrowers, take note: Banks still aren’t moving very fast to kick you out of your homes. February’s foreclosure settlement between big U.S. banks and state attorneys general should have been bad news for mortgage deadbeats — and for house prices. Having resolved charges that they had filed bogus documents to speed up repossessions, the banks should have felt free to move ahead with millions of foreclosures. They should also have started selling more repossessed houses, an influx of cheap supply that would weigh on the market.

So far, though, that’s not happening. …. as a result, the average number of days since the last mortgage payment had been made on homes in the foreclosure process rose to 667, up from 660 the previous month and 253 in February 2008. In other words, the average delinquent borrower could live rent-free for nearly two years without getting evicted, assuming the borrower chose to stay in the house.” (“The Foreclosure Deal Spares the Housing Market (So Far)”, Bloomberg)

Just to be clear, we do not agree with the author that the people who were victims in this vast criminal mortgage laundering scam– that destroyed the financial system and pushed the global economy into a Depression–can be fairly characterized as “mortgage deadbeats”. Even so, the point he makes is important, because it illustrates how the banks are fiddling with supply to avoid the losses on non performing loans. Screwball accounting regulations allow the banks to keep mortgages on their books at fictitious prices (artificially high) until the house is sold. Only then, are they required to write down the difference. Considering that they still have millions of distressed homes on their books, this is no small matter. An accurate accounting of bank real estate inventory would show that most of the biggest banks in the country are technically insolvent.

So what does this mean for people who are thinking about buying a house in the near future? Should they hang on to their money and wait for another year or so or jump at that $450,000 McMansion with the Gothic parapets and custom Swedish sauna that’s been marked-down to a mere $185,000?

That’s hard to say. It depends on one’s own priorities. But one thing is certain, housing prices won’t be going up for a very long time. Maybe never. Moody’s ratings agency forecasts that we’ll see “an 8% to 10% decline in housing prices” due to a 25 percent uptick in repossessed properties from 1 million in 2011. Unfortunately, Moody’s calculations are far too optimistic. In fact, “top housing analyst Laurie Goodman estimates the amount of shadow inventory at between 8 and 10 million homes, and Michael Olenick, using a different methodology, comes in at just under 9 million homes.” (“Moody’s Foresees 10% Drop in US Housing Prices“, naked capitalism)

Even if Goodman-Olenick’s predictions are wrong by half–which is unlikely–prices have a long way to go before they hit bottom.

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

More articles by:

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
March 16, 2018
Friday - Sunday
Michael Uhl
The Tip of the Iceberg: My Lai Fifty Years On
Bruce E. Levine
School Shootings: Who to Listen to Instead of Mainstream Shrinks
Mel Goodman
Caveat Emptor: MSNBC and CNN Use CIA Apologists for False Commentary
Paul Street
The Obama Presidency Gets Some Early High Historiography
Kathy Deacon
Me, My Parents and Red Scares Long Gone
Jeffrey St. Clair
Roaming Charges: Rexless Abandon
Andrew Levine
Good Enemies Are Hard To Find: Therefore Worry
Jim Kavanagh
What to Expect From a Trump / Kim Summit
Ron Jacobs
Trump and His Tariffs
Joshua Frank
Drenched in Crude: It’s an Oil Free For All, But That’s Not a New Thing
Gary Leupp
What If There Was No Collusion?
Matthew Stevenson
Why Vietnam Still Matters: Bernard Fall Dies on the Street Without Joy
Robert Fantina
Bad to Worse: Tillerson, Pompeo and Haspel
Brian Cloughley
Be Prepared, Iran, Because They Want to Destroy You
Richard Moser
What is Organizing?
Scott McLarty
Working Americans Need Independent Politics
Rohullah Naderi
American Gun Violence From an Afghan Perspective
Sharmini Peries - Michael Hudson
Why Trump’s Tariff Travesty Will Not Re-Industrialize the US
Ted Rall
Democrats Should Run on Impeachment
Robert Fisk
Will We Ever See Al Jazeera’s Investigation Into the Israel Lobby?
Kristine Mattis
Superunknown: Scientific Integrity Within the Academic and Media Industrial Complexes
John W. Whitehead
Say No to “Hardening” the Schools with Zero Tolerance Policies and Gun-Toting Cops
Edward Hunt
UN: US Attack On Syrian Civilians Violated International Law
Barbara Nimri Aziz
Iraq Outside History
Wilfred Burchett
Vietnam Will Win: The Long Hard Road
Victor Grossman
Germany: New Faces, Old Policies
Medea Benjamin - Nicolas J. S. Davies
The Iraq Death Toll 15 Years After the US Invasion
Binoy Kampmark
Amazon’s Initiative: Digital Assistants, Home Surveillance and Data
Chuck Collins
Business Leaders Agree: Inequality Hurts The Bottom Line
Jill Richardson
What We Talk About When We Talk About “Free Trade”
Eric Lerner – Jay Arena
A Spark to a Wider Fire: Movement Against Immigrant Detention in New Jersey
Negin Owliaei
Teachers Deserve a Raise: Here’s How to Fund It
Kollibri terre Sonnenblume
What to Do at the End of the World? Interview with Climate Crisis Activist, Kevin Hester
Kevin Proescholdt
Secretary of Interior Ryan Zinke Attacks America’s Wilderness
Franklin Lamb
Syrian War Crimes Tribunals Around the Corner
Beth Porter
Clean Energy is Calling. Will Your Phone Company Answer?
George Ochenski
Zinke on the Hot Seat Again and Again
Lance Olsen
Somebody’s Going to Extremes
Robert Koehler
Breaking the Ice
Pepe Escobar
The Myth of a Neo-Imperial China
Graham Peebles
Time for Political Change and Unity in Ethiopia
Terry Simons
10 American Myths “Refutiated”*
Thomas Knapp
Some Questions from the Edge of Immortality
Louis Proyect
The 2018 Socially Relevant Film Festival
David Yearsley
Keaton’s “The General” and the Pernicious Myths of the Heroic South