Fifty to Seventy-Five Percent. That’s how much home prices will slide before this is all over.
Here’s the latest evidence that what we’re looking at is not just some short-term real estate cycle:
Of the 55-million families with mortgages, 10.4-million of them “are sliding toward failure and foreclosure”—a tragedy that will depress the U.S. housing market for years to come, a result of too many houses for sale and too few buyers.
That’s the blunt conclusion of distinguished economics journalist William Greider, to be published in an article in the November 14th issue of The Nation magazine.
America’s “Economic recovery will have to wait until that surplus (excess houses) is gone, because the housing sector has always led the way out of recession,” Greider says. “The more housing supply exceeds demand, the more prices fall. The more prices fall, the more families get sucked into the deep muddy. The vicious cycle is known in the industry as the death spiral. So far, there’s no end in sight.”
The fact is, easy money from the Fed and no-income financing by banks took home prices to obscene levels during the real estate boom. The home values we saw at the peak in 2006-early 2007 were totally manufactured and without merit. That’s why over half of American households are now underwater in their mortgages:
According to a note by real estate expert Mark Hanson, referenced by CNBC’s Diana Olick, the truth of the matter is that, if one were to truly factor all implicit equity reductions, the number of underwater houses is…half. Expect this to proceed like a shockwave in the PrimeX space once the market comprehends what this means…
Source: Zero Hedge
The banks will never recover this money.
Nearly 20% of homeowners will, at some point during this crisis, fall into the delinquency/foreclosure process. That is a massive number. Out of 100 homes that may be in your neighborhood, on average, 20 of the homeowners will not be able to make their monthly mortgage payments. Of those 100 homes, fifty of them are underwater in their mortgage.
The numbers will likely get even worse, especially when you consider that interest rates will explode as US dollar risk becomes reality to investors around the world. Imagine what would happen if mortgage rates reached 1981 levels and were in excess of 10% (as high as 18% in some cases!). You think we have a glut of homes on the market now? At 10% interest or more, sales will almost completely lock up.
You can say good bye to the housing recovery for at least a decade. It’s just not going to happen.