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Housing – Wall Street’s Kryptonite

Only 'Super Ben' is keeping the market afloat in spite of a broken housing market


Also, housing price appreciation creates real and perceived wealth. When you look at your mortgage statement, and know the next-door neighbor sold his house for 40% more than you owe, you have real potential wealth built into your property — i.e., some money in the metaphorical “piggy” bank that is your home.

If, instead, you find out your neighbor sold his house for about what you owe on your mortgage or less, you tend to lose your optimism, become more cautious and hold on to that car you were going to trade for another year or two, and put off other elective purchases.

And housing prices are continuing to fall. The leading gurus on this topic, the data people at Case-Shiller, showed this in the home prices survey released late last month. They stated, “The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.”

Finally, the income and wealth lost from the one-third drop in housing prices has hit consumer spending hard and will continue to do so.

The Looming Wave of Foreclosures

Housing prices continue to fall because of the great and growing imbalance between supply and demand. It’s a problem that can’t be fixed by the government, or anyone else.

The current inventory of homes on the market is not only high by historical standards, but getting bigger every day. Foreclosures have flooded the market with homes, and there are 7 million or more foreclosures yet to happen during the next three years. According to data from the March 2011 LPS Data Monitor:

  • For every new foreclosure, or foreclosure “start,” there are three homeowners who are more than 90 days past due on their mortgages. And these people rarely recover.
  • For every foreclosed home sold, there are three new foreclosure starts.
  • The inventory of foreclosed homes is massive—and for every foreclosure sale, there are still 30 foreclosed homes in inventory.

Predicting foreclosures is relatively straightforward using the data about homes underwater, delinquency rates and days past due.

Article printed from InvestorPlace Media,

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