Comments on: Shadow Inventory Put At 1.7 Million in 3Q

By: NHF

NHF — Mon, 25 Jan 2010 06:58:20 +0000

Its crazy out there in the real estate market right now in the so cal area at least. It has been a big time sellers market where bidding wars are happening and people are swarming new construction developments. Its like deja vu all over again… maybe its a mini bubble created by the low interest rates and low inventory levels due to the slow drip from the banks. I know this sounds crazy, but its happening. Check out this video:
http://www.bubbleinfo.com/2010/01/24/cv-in-demand/

Any thoughts?

By: Will

Will — Sun, 24 Jan 2010 19:32:43 +0000

Seems like the Govt knows something about rising foreclosures this year. Probably due to the resets this summer and more people finally giving up on their homes. To keep the consumer alive, Obama is implementing HAFA, which in turn has the potential to inflate the pending inventory much higher. Again, the government never thought people would actually purposely miss payments to get into HAMP because of moral hazard and the “importance” of your credit rating. Ultimately, moral hazard goes away in communities when others are breaching it…which is why I believe more people will eventually say “enough is enough” and walk. Currently, 10% of loans are delinquent and a quarter of all homes are under water (30% or more in California). This leads me to believe that home prices should be relatively stagnant for the next 2-3 years. Plus I cannot see unemployment dipping below 7-8 percent in that timeframe.

On the flip side, housing can make a rebound quicker than expected. Interestingly, the last decade has been heavily dominated, at a historical rate, by investment in homes within the 55 and older demographic. Historically, rising interest rates mean higher home prices, which is actually opposite of what we are told (affordability index). I actually believe that rising interest rates mean the rich (hence the over 55 group) need to invest their money into hard assets to avoid inflationary taxing. International investors can also scoop up properties.

I am interested to hear your thoughts on this and whether it will continue or if you believe the historical trend will change…

http://www.therealestatebloggers.com/2008/04/29/united-states-has-1294-million-homes-186-million-of-whom-are-vacant/

http://www.npr.org/blogs/thetwo-way/2009/11/one_in_four_us_homes_underwate.html

By: Steve

Steve — Thu, 07 Jan 2010 05:11:55 +0000

It seems like the 1.7 million is a low number … to what I was expecting from all of the carnage out there.

By: Dave

Dave — Tue, 05 Jan 2010 22:24:02 +0000

Sorry, I forgot to answer one of your questions: When I wrote “pay rent
to the government”, I meant that Fannie and Freddie will be
nationalized, and since the government will be holding the paper (and
the houses will be unfordable), they will have to rent them out… To us.

Assuming of course that the whole thing doesn’t crash and we have to
push the ‘reset’ button.

By: Dave

Dave — Tue, 05 Jan 2010 22:23:24 +0000

The way I see it most of those involved here think the tail wags the
dog. That is, high asset prices (stocks, bonds and RE) equal a healthy
economy. I found the “smoking gun” where this insane notion was
inserted into the Fed/Treasury/Government and noted it here:
http://thetaildoesnotwagthedog.blogspot.com/2009/07/in-end-tail-does-not-wag-dog.html

The problem is that a bond’s value is ultimately determined by it’s
ability to pay with interest, a stock’s value is determined by it’s
ability to eventually pay dividends, and RE’s value is determined by
incomes/wages (and the supply of RE on the market at that time). High
prices on all of these may increase leverage in the short term (by
providing something to lend against), but ultimately something is only
worth what someone else will pay.

So with RE, prices are always determined by what the prevailing income
is in that area. Traditionally it’s been 3x your annual income. Now
it’s something like 5x?!

I would guess that the reason these FanFreddie homes are being sold
quickly is because the banks are keeping most of the inventory off the
market, and only releasing them to be sold in dribs and drabs. I
understand why they are doing this, as if all the shadow inventory came
on the market at once, it would collapse RE, destroy their balance
sheets, and the whole system goes into a deflationary black hole.

The problem is that deflation cannot be fought with more debt. It just
adds to the deflationary environment. Because we don’t even have a fiat
currency, we have a *fiat debt-based* currency, the imbalance just grows.

You can’t cure a junkie by giving him more dope. Unless of course, you
give him enough that he overdoses. Which is what IMO they have done,
it’s just that this junkie is going to take another two years to die.