Sunday, May 10, 2009

Why this is still no housing recovery

A few days ago I wrote about the supposed "housing recovery". I continue those thoughts here...

This "recovery" is also going to be temporary because the Great Recession will continue pushing unemployment rates much higher. Currently we are a little over 8% nationally in the unemployment rate. There is not one reputable national economist who is predicting less than a 10% unemployment rate before the recession bottoms out. Lastly, as the housing crash continues, even more homeowners will continue walking away from their homes (20% of homeowners nationwide are now underwater on their mortgages), thus putting even more homes into the "for sale" inventory. Across America right now it is estimated that there are ten million homeowners that actually can afford to make their mortgage, but have lost so much equity - and fear that there will be no real estate rebound for a decade or more - that they very well may just “walk away”. If just one million of those ten million walk away, this will be another devastating blow to the housing market.

And I have yet to even talk about the “shadow inventory” of homes that banks are holding back from putting on the market. They are doing this because they know they cannot sell these homes right now and it will just further destroy their balance sheets and push the housing bust further down quicker. When these homes eventually do hit the market, imagine what that this sudden influx do to supply (and prices/sales).

In regards to the "shadow inventory" problem, check out this recent quote from Stan Humphries, Zillow vice president, in the Tampa Bay Tribune…
“Additional information we have this quarter on ’shadow inventory,’ with one-third of homeowners indicating they would like to put their home on the market if conditions improve, confirms our earlier fears that a bottom in home values could be quite protracted,”

Then, we can begin to talk about the upcoming mountain of mortgage resets in alt-a loans and the ugly option arm mortgages. These resets are scheduled to peak in 2010 and 2011 respectively. Think about it and then tell me what kind of impact do you think these mortgage resets are going to have on the already strained housing crisis?

This is no recover...just a slight slowing of the housing crash. 1999 prices, here we come – maybe a bit slower now, but we are still heading there.

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