The Hard Truth About Residential Real Estate

by | May 28, 2010 | Headline News | 21 comments

Do you LOVE America?


    Originally published on and written by Mad Hedge Fund Trader

    Anyone who believes that housing is on the rebound, and that now is the time to buy, should take a very hard look at the numbers I dredged up for my spring lecture and luncheon tour.

    There are 140 million personal residences in the US. Today, there are 26 million homes either directly or indirectly for sale.

    According to a survey by, a real estate appraisal website, 20 million homeowners plan to sell on any improvement in prices.

    Add to that 4 million existing homes now on the market, 1 million new homes flogged by companies like Lennar (LEN) and Pulte Homes (PHM), and 1 million bank owned properties.

    Another 8 million mortgage owners are late on their payments and are on the verge of foreclosure, bringing the total overhang to 34 million homes.

    Now, let’s look at the buy side.

    There are 35 million who are underwater on their mortgages and aren’t buying homes anytime soon, nor are the 35 million unemployed and underemployed. That knocks out 50% of the potential buyers.

    Here is where it gets really interesting. There are 80 million baby boomers retiring at the rate of 10,000 a day. Assuming that they downsize over time from an average 2,500 sq ft. home to a 1,000 sq. ft. condo, and eventually to a 100 sq. ft. assisted living facility, the total shrinkage in demand is 4.3 billion sq.ft. per year, or 1.7 million average sized homes.

    That amounts to a shrinkage of aggregate demand for a city the size of San Francisco, every year. You can argue that the following Gen-Xer’s are going to take up the slack, but there are only 65 million of them with a much lower standard of living than their parents.

    Throw in the disappearance of state and federal first time buyer tax credit. You can count on a jump in long term capital gains taxes and state and local property taxes, further diminishing property’s appeal.

    If you are looking for a final stick to break the camel’s back, how about eliminating, or substantially reducing the home mortgage interest deduction?

    Add it all up, and there is a massive structural imbalance in residential real estate that will take at least a decade more to unwind. We could be looking at a replay of the same 26 year period from 1929 to 1955 when prices remained flat, and we are only 3 years into it!

    A second down leg in the real estate market seems a no brainer to me, as is the secondary banking crisis that follows. Perhaps that’s why hedge funds have been big sellers of the homebuilder’s ETF (XHB).

    What’s a poor homeowner to do? Don’t ask me. I sold everything in 2005 when my research threw up these numbers, and have been happily renting ever since. And, if the toilet blocks up, I just call the landlord.


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      1. Obama’s plan:

        Let the other 182 million Mexican nationals cross the border illegally into the United States via the new North American Highway and occupy these homes.   

        Give all 112 million Mexican nationals the right to vote in U.S. elections and he (Obama) will be re-elected in 2012 by a landslide.

        Yep, that’s Barrys’ plan.  

      2. The only reason the system hasn’t failed yet is the massive effort by the media and Washington DC to assure the masses that the crisis is over. Printing and borrowing Trillions of Dollars to provide :

        Emergency unemployment extentions and food stamps.

        Emergency funding of paychecks and pension funds for government employees during a time when government needs to shrink.

        Bail-outs for financial institutions that caused this crisis in the first place.

        Taxpayer funded tax credits toward purchases of homes, cars, and appliances.

        Imagine a man is walking down the street, and suddenly shot in the stomach by the driver of a passing car. Out of the blue a doctor races to where you are and proceeds to aid you, comfort you, and assure you that help is on the way. As you feel the life leaving your body you come to realize that help will not arrive in time and the doctor is actually the man that shot you.
        We are being deceived by the very people that caused this.The worst has not arrived yet and Americans need to prepare as best they can for some serious hard times to come.The crisis in Greece is just a prelude to what could happen in the U.S.
        Gear up folks, it’s gonna be tough.

      3. We are being deceived by the very people that caused this. Exactly right.

        When are we going to do something about it?

      4. what do the names rothschild, warburg, friedman, greenspan, rubin, blankfein, cohn, kagan, emanuel, summers etc. all have in common  ?

        time to wake up to this insidious cabal..

      5. When are we going to do something about it?

        You mean sitting around the keyboard bitching to strangers on an anonymous internet massage board is not effective? If only those greedy taxpayers would turn the other financial cheek and take one for the team…………

      6. Solution: vote all the bastards out of office and demand term limits for all of congress. Put strict limits on the budget, put all government employees on the social security system, force all illegals to get legal or go back home, get rid of the IRS and replace it with a sales tax at the end point of purchase…that way EVERYBODY pays… those who want to buy more stuff… pay more taxes. Everyone on welfare is also going to school to learn a trade that will support them and their families so they can become productive, responsible people with a better self esteem for themselves so they can get off of welfare!

        This takes courage and sacrifice. We need to get leaders into offices all over this land who are true servants and committed to the process above.

        Give honor where honor is due… to our Creator, Jesus Christ.

      7. As long as public elections are financed by private donations, elected officials will remain beholden to their big money benefactors and dismissive of the people.  Nothing of significance will improve until this changes.

      8. @ MDF
        I agree with ‘alanisimus’ approach by voting out the corrupt career politicians from both parties. And support candidates that pledge to cut government size & spending, along with some type of flat-tax or universal sales tax.

        @ sanityjones
        I email my Congressional leaders constantly with nothing more than the usual generic response.Vote out the old, vote in the new.
        If that don’t work,eventually millions of hungry, angry, unemployed Americans will probably kick it up a notch.Hope we still have time to turn this economic debacle around before an  ” LA riot ” type event occurs. It could get ugly very quickly.One more reason to gear up.

      9. Wheedle,
        I totally agree in principle, however the reality of the situation is that this country will continue to follow the (failing) European model for social, economic, and political order. I do not believe there are enough seats up for grabs this Nov. to facilitate the necessary changes in a time frame sufficient to overcome the damages done to America thus far. The road to recovery is far to strenuous, requires too much work, sacrifice, and restraint to appeal to the majority of voters. Take Ron Paul and the end the FED bill as an example. The “majority” of politicians, voters, pundits, etc were supportive of this legislation………..yet it went nowhere. The truth will set us free, but there is a price……..that is the problem; no one is truly willing to pay. The residential real estate market, as big a fiasco as it is, is merely one page of an epic financial drama and the cold facts of history dictate that millions of hungry, angry, unemployed people will give up anything/everything seeking political solutions in the form of comfort and security; ultimately receiving nothing more than death at the hands of their oppressors. Those who will stand in honor against the system, fighting for Truth, Justice, and Liberty are few, and it is in the hands of these few that our future truly lies.

      10. @ sanityjones
        Granted many Americans are still oblivious to a crisis.And the system has been burdened for years with the growing number of people being added to entitlement programs.Growing unemployment, combined with working Americans becoming more frugal with their spending, has stalled the economy. And I believe the ‘ Powers That Be ‘ are not prepared for a system crash and civil unrest. They are simply doing what they think is necessary to prop up the system to give “them” the opportunity to prepare.Like many I was hoping that our government would do the right thing, but it would appear they knew this was going to happen.They just didn’t think it would happen in their lifetime.
        With that said, our country’s demise may be inevitable. Empty stomachs may decide what happens next.

      11. I will say that I have higher hopes in empty stomachs making proper decisions than I do the prospect of empty headed zombie voters doing what is truly necessary for a brighter future.

      12. Obama is screwing things up at light speed.  

        Maybe he’ll realize he’s not anywhere near competent to do the job and resign the presidency.   

        Then we can have Biden (Joe the bartender) as president.    

      13. If voting really changed things, it would be made illegal. They may let you sway things on very, very minor issues, but as far as what is really important? C’mon….do any of you really believe that freaking voting is going to change the course of events? On National policy issues towards Immigration, War, Taxes, Deficits, Criminal Justice, Welfare, etc.? Please….”They” do whatever they want because they can. You have no voice. Nothing will change until it all hits the wall. Period. Then it will get worse…….for us.

      14. Scab is right; it will not change until it all hits the wall.  Through this whole ‘economic disaster’ period my biggest fear has been that it would not get bad enough to wake people up.  That would mean that people return to the ‘party’ right after the hangover went away, when they really should stop drinking. 

      15. Term limits make no sense. Whomever is elected, unless they are saintly, will just sit for one term, get paid off, do their damage then leave. The world is has a shortage of saints at the moment.

        How can the Federal government be repaired? If it is possible, it will require a huge effort of a large part of the American people and the government of the States that are not wallowing in the same corruption. I’m looking at you California, Illinois, Michigan, New York, et al.

        The only way to get power back to the people is to repeal the 16th Amendment which gave unlimited powers of taxation and borrowing to the federal government. Every family in America is in debt, a minimum, of a million dollars thanks to the corrupt bastards in the government.
        The 17th Amendment removed State government representation at the federal level. It made the Senate a directly elected body, but the House of Representatives was already that. What the amendment did was give inordinate power to the political parties, their banker, corporate and media bosses.
        Public law 62-5 which is where the House of Representatives limited themselves to 425 members instead of the 4,000 it should be today. You should be able to call your rep and talk to them, instead they are just part of the elite. It takes only 300 corrupt people to change the entire country and that is the problem.
        Nevertheless, I doubt that it possible because the American people are just as uneducated, propagandized and apathetic as the Germans were in 1933. I believe that we will sink deeper and deeper into tyranny. There will be terrible poverty and unimaginable wars, and as always, the rich will just get richer. 

      16. It takes only 300 corrupt people to change the entire country and that is the problem……..

        Wow….in other words .000001% of the population controls everything. Reason number 278  that we are screwed.

      17. Mr. Lusk,
        Do you really want even more corrupt state legislators electing senators?  It is not perfect, but having senators accountable to you and I is much better than having senators that are only accountable to state level power brokers.  The amendments to the Constitution are there for good reason and turning back the clock to 1789 is a recipe for disaster. 

      18. Mr. shogunole, you must be a “progressive” with the usual lack of knowledge of history and any understanding of the Constitution. That is why we are now a fascist nation run by crony capitalists with a debt of over a hundred trillion dollars and an real unemployment rate far beyond the last Great Depression.
        The 17th Amendment was added in1911 for the express purpose of taking power away from State governments and giving it to the “progressive” bankers, “power brokers” in the large corporations and the media. The whole point of having a Senate was to give the sovereign States power at the federal level. If it is to be State “power brokers” then that is the concern of the people of the particular State and not the federal government.
        If you have not figured it out already we already have a body that is elected by the population at large and that is the house. That has also been corrupted by same group at the same time. The reduced number of representatives makes it little different than the Senate. Having the correct number of representatives, about 4,000 would make for more debate and more political parties. It would also make it much easier to communicate with your rep as well as it more expensive to bribe enough people.  
        Now we have a just few people running the government with no allegiance but to the highest bidder, or haven’t you noticed?

      19. Mr. Lusk,
        Yes, I am a progressive; however, I am well aware of our nations history and the Constitution thank you very much.
        Here are some of the reasons for the amendment from The ratification of this Amendment was the outcome of increasing popular dissatisfaction with the operation of the originally established method of electing Senators. As the franchise became exercisable by greater numbers of people, the belief became widespread that Senators ought to be popularly elected in the same manner as Representatives. Acceptance of this idea was fostered by the mounting accumulation of evidence of the practical disadvantages and malpractices attendant upon legislative selection, such as deadlocks within legislatures resulting in vacancies remaining unfilled for substantial intervals, the influencing of legislative selection by corrupt political organizations and special interest groups through purchase of legislative seats, and the neglect of duties by legislators as a consequence of protracted electoral contests.
        Given this, please answer this question.  If the residents of a state like NY, with the most dysfunctional legislature in the country(the state senate was in disarray for a month), have the power to elect a US senator, how would it benefit them to give that power back to the state legislature? 
        This bears repeating:
        You and I have the POWER to elect a US senator in our respective states.  How does it benefit you or I to give up that POWER to what is most likely a more corrupt legislative body?  Repealing the 17th amendment makes no practical sense!
        As for adding more representatives, that makes sense.  Larry Sabato in his book also has some good suggestions on how to improve our constitution which make more sense than the repealing of the 17th amendment.
        I agree with you that our govt needs fixing and that we have allowed our govt to be captured by special interests.   
        How to fix it without becoming fascist Spain or Italy back in the 1930’s is the $64,000 question that neither you nor I have the entire answer for.

      20. Mr. Shogunole,
        I don’t trust politicians and if you have been paying attention recently or had an understanding of history you would not either. The United States is already a fascist country. I have no right to my own hard earned income, my land, money, healthcare, student loans, retirement, etc. I pay massive amounts of taxes but have zero say in how it is spent. The government takes from me and gives it to billionaires and pays single women to have children. My savings and retirement are inflated to nothing by the government for their billionaire handlers own benefit. I am forced to pay for your stupidity and incompetence as a voter in California, New York, Michigan, New Jersey, etc., etc. You should not have to pay for mine.
        I want a piece of paper that empowers me, my community and my State, because I don’t trust your State and certainly NOT the 537 politicians at the federal level. I want a piece of paper that precisely defines the limits of the Federal government.
        Repealing bad amendments is a much easier process than creating bad new ones. I also do not want so-called progressives to have an opportunity to cause more damage because you are the ones that have created the fascist government that has taken away so many of my liberties. Progressives have created the hive, the vast government dependent underclass to keep them in power and it is evil. What you think is for the good of the hive is not  good for an educated self reliant populous and that is why you maintain, even glorify, government dependence and dumbed-down education.

        “The urge to save humanity is almost always a false front for the urge to rule.” – H. L. Menken


      21. Mr. Lusk,

        I share your anger regarding our state of affairs in more ways than one and I do not trust our politicians.  However, progressives are not the cause of all of our ills.  Deregulation is a conservative idea and our affairs have been dominated by conservative thinking since Regan.  The right is just as responsible for our troubles as the left in this case.

        That said, a few comments on your post:

        1)   You mentioned that the US is already a fascist country.  We’re close, but not there yet.  When DHS or the FBI knocks on my door or yours because of our beliefs we’ll have arrived.  GWB and the republican congress created the Patriot Act, Patriot Act II( not enacted) and the military commissions act.  If you read the fine print, you’ll see that these laws eroded our civil liberties in addition to making it easier to fight terrorists.

        2) You say you do not want to pay for my stupidity as a resident of a different state than yours and you don’t want me paying for yours.  However, if I do something as a resident of my state that will benefit you as well, wouldn’t you want to have access to that?

        3) You also mention the following:
        I want a piece of paper that empowers me, my community and my State, because I don’t trust your State and certainly NOT the 537 politicians at the federal level. I want a piece of paper that precisely defines the limits of the Federal government. “ You imply that we should return to being a loose confederation of states. Originally, The Constitution was constructed because the Articles of Confederation did not work.    That proved to be unworkable in 1789 and it is now.  In addition, the civil war was fought in large part because the south viewed the United States as a union of individual states instead of a singular nation. We simply could not govern ourselves as a union of individual states and blood was spilled because of it.  Why should that notion work now? The US would not be the superpower that it is had we kept the notion of our country as a group of 50 individual states instead of one nation.

        Lastly, your assumption that we can exist as totally independent entities and still function as a strong, coherent community, in my opinion, does not hold.  Ask any football coach about that( Maybe you are one yourself).  Humans are social creatures by nature and our survival ultimately depends on how well we are connected to our communities. Why, because power is thwarted only by more power and  size (# community members)+ efficiency(level of connectedness) determines power.  Technology has allowed us to survive as lone actors, but if the SHTF, that will no longer be the case. 

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