The financial crisis has been largely born out of the housing market, so it’s been no surprise that the bulk of bailouts have worked to protect home values from falling further. For better or worse, American homeowners have been looking for that protection because a substantial portion of their net worth is tied up in their homes. The up and down fluctuations in home prices tend to correspond with either increased consumerism or old-fashioned belt-tightening and, in the US, the strength of the economy is largely dependent on the consumer’s willingness to spend.
Unfortunately, while propping up home prices is essential to maintaining the appearance of a recovery, there are at least five reasons why a further downturn is more likely. Zero Hedge offers a quick summary of a CIBC report on five causes of instability in US housing:
“1. Short-lived remedies; used by the administration to prevent further price deterioration (tax-credits);
“2. Shadow Inventory; in reality when accounting for the surging shadow inventory which very few dare talk about, the total number of available units double to over 8 million, representing a record high 16 months of supply.
“3. Strategic defaults; the amount of households with negative equity is roughly 10 million or about 20%, in 2009 25% of all foreclosures were strategic; as populist anger against banks accelerates look for strategic defaults to keep rising
“4. Quantitative Easing expiring; This needs no introduction: the sole reason why mortgage rates have been as los as they have, has been due to the Fed’s constant manipulation of the MBS market via the $1.4 trillion MBS/Agency QE purchase program. With this program set to expire in 2 months, rates are set to explode.
“5. House Prices are already entering a double dip; Previously we discussed the Case Shiller NSA home price index number which indicated that a double dip in prices has already commenced. A positive feedback loop will only lead to further deterioration here”
There’s no simple way of predicting how long the current pause in the housing market’s decline will last, but the above reasons help highlight why the very temporary government-sponsored relief can’t go on forever.
More detailed analysis, including 5 simple charts that visualize the problem, are available at Zero Hedge in its coverage of the next leg of the housing crisis.
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let?s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
Why not just declare bankruptcy now, restructure and move on. It will be bad…no doubt. But this continue death by a 10000 cuts is killing you anyway.
Pingback: Cheats for Poptropica
Pingback: Love Letters For Her
Government life support…liquidity injection… or a giant Band-Aid…whatever you want to call it, quantitative easing is the keeping the global economic ship afloat – but for how much longer? Richard Duncan explores…
Ben Bernanke introduced the world to the concept of "quantitative easing" back in 2002. It was an "unorthodox plan" to save the economy from the horrors of deflation. But the monstrous economy it has actually created is in some ways far worse. And as Richard Duncan explains, it's not going to end any time soon. Read on..
While the technical details of Bitcoin may intimidate the novice, they shouldn’t keep him from getting in on a digital currency revolution that -- while taking different forms -- isn’t going away. How do you get the simplest, easiest-to-act-on tips about how to invest, safeguard and grow your digital wealth? Dominic Frisby has more…
The duality is stark. In one hand, we have an energy renaissance underway, in the other, a virus is threatening to wreak havoc on the markets and, potentially, your life. Nothing we’re currently doing to fight the Ebola virus will work in 2014, say the researchers. Nothing we’re currently doing will beat it in 2015, either. We need a new game-plan. Read on…
Lose your shirt in 3D printing stocks this year? Don’t kick yourself. You’re not alone. (Okay, kick yourself a little if it’ll make you feel better.) You need to make sure you don’t lose your 3D-printed shirt in the next tech craze. Because there will be a next time. Look, it’s really not your fault if you got taken for a ride on 3D stocks. Greg Guenthner has more...