foreclosure sales

mclaren

Everyone seems to have neglected the essential dilemma here. Contrary to the article, this isn’t about screwing current homeowners as opposed to future homeowners.

This whole mess results from a much bigger Catch-22.

It’s simple. If cramdowns had occurred, the four big mega-banks that hold most of the toxic paper on houses in America would’ve been wiped out because they’d suddenly have to rewrite the value on those mortgages to their true value, which is far far far below what the mega-banks have on their books.

But if cramdowns or a convulsive housing crash don’t take place, the owners get foreclosed and the homes wind up vacant and eventually trashed by vandals, the homeless, used by druggies as shooting galleries, etc. That wrecks entire neighborhoods and destroys cities’ tax base, wiping out whole states.

The U.S. economy is getting hammered from multiple Catch-22s like this. Obama and company haven’t made good choices because there are no good choices.

Consider: the desperate and ongoing effort to prop up housing values has nothing to do with supporting homeowners and everything to do with keeping America’s financial system from disintegrating. If the actual value of the toxic mortgages gets revealed by cramdowns or a housing crash or some other huge convulsive revaluation of houses down to their true value (probably 50% to 70% down from current values, since the retrenchment always overshoots on the low side just as the bubble always overshoots going up), the currently dicey balance sheets of all America’s big banks get destroyed. There will be nowhere to run, nowhere to hide. America’s big banks will get wiped out.

You want to revisit late 2007? Banks refusing to do overnight lending? The entire U.S. financial system seizing up? Depositors unable to get their money out? Every ATM in America shuts down, all the banks shutter their windows and close up? That’s what happens if houses sink to their true value suddenly. The shockwave will wreck the financial system, which stays afloat right now only because of the “extend and pretend” charade by America’s big banks that their balance sheets are okay and those toxic assets will someday come back up in value and the mortgages that aren’t being paid are just in arrears and not in default and those houses standing empty that haven’t been foreclosed are being renovated instead of left to rot because as long the banks don’t foreclose, they don’t have to write off those loans as bad and can still carry the loans on their balance sheets as performing assets.

There are no good choices. If the housing market crashes, the U.S. financial system seizes up and most of our big banks implode. There’s no fig leaf then, no way of pretending America’s big banks are solvent. Right now we can pretend. But not if there’s a house sudden implosion in housing prices or a mass wave of cramdowns.

But if the housing market doesn’t crash and the big banks are able to limp along with “extend and pretend” and gradually make nickels and dimes to pay down all that toxic debt by gouging bank depositors with outrageous overdraft fees and 35% credit card interest rates, then we turn into Japan and get a lost decade. Ten years or more of 10% unemployment. A collapse in the federal and state and local city tax bases as far as the eye can see. Entire states going into default. CIties selling off muni water systems, parking meters, airports in desperation.

Neither choice is a good one. Which do you choose? There is no good choice. People who blame Obama for not making the right choice on he housing collapse don’t seem to realize there is no right choice. You’re fvcked either way.

Same deal with offshoring. Another Catch-22. If congress & the president get their act together and ban offshoring and erect trade barriers and tariffs to keep jobs in America, our standard of living declines and our exports plummet and America becomes non-competitive internationally in most areas, except drug and sex tourism and our Ivy league universities. This will result in drastic declines in America’s standard of living. No more nice flatscreen TVs or iPods for you, America won’t be able to afford ‘em anymore. No more well-built Japanese cars, you’ll have to buy a Detroit POS that breaks down every 3 months. The median American wage is collapse and what’s worse, foreign companies will swoop in and buy up most of America’s big corporations because they’ve be vulernable to foreign takeover when their balance sheets decay because America as a whole has become much less wealthy.

But if we don’t ban offshoring and don’t erect trade barriers and don’t use tariffs to keep jobs in America, all our high-wage high-skill jobs as well as all our manufacturing jobs get exported overseas and America becomes a nation of dog groomers and xerox clerks. You can’t continue as a first-world country in that case.

So which do you choose? There are no good choices here.

Another Catch-22: if we slash U.S. military spending back to reasonable levels, we hemorrhage jobs because that’s where a huge number of the remaining high-paying jobs in America are. But if we don’t slash U.S. military spending, the country becomes an increasingly militarized garrison state and goes broke in the process.

Another Catch-22: if we reform America’s broken health care system lots of Americans will get decent health care who couldn’t before, but the last profit center of high-paying jobs that can’t be outsourced now gets wiped out. But if we don’t reform America’s broken health care system, we go broke and millions upon millions of people die real slow screaming like animals.

So what’s your choice? Which do you choose? To get boiled alive, or drink hydrofluoric acid? There are no good choices here. Everywhere we look, we’re staring at a myriad of Catch-22s.

From The Daily Capitalist

Existing Home Sales

Today's report that existing housing sales plummeted 27% in July should not come as a surprise.

Consider the fact that we are coming off of the greatest boom-bust credit cycle in world history. The focus of that cycle was residential housing which resulted in massive overbuilding of homes. Now we are seeing the inevitable result of the housing boom — the housing bust which requires the liquidation of this malinvestment.

From 2001 to 2006 housing starts jumped 40%, from about 1.6 million units per year to 2.250 million units per year. That period coincided with a massive expansion of the money supply by the Fed. When the cheap money stopped, the ride ended, and projects that, but for the cheap money were unprofitable, went broke.

The liquidation phase is never pretty but it is necessary for recovery. And that is why the government has been unable to prop up the housing market, except temporarily though tax credits. You can't push a string as they say, and the inevitable process of liquidation is continuing after the tax credits expired in April.

According to the National Association of Realtors report, demand for existing single-family housing dropped to a 15 year low. The 27% drop was the biggest one-month drop since 1968. Sales dropped 29.5% in the Northeast, 22.6% in the South, 25% in the West, and 35% in the Midwest. June sales figures were revised downward to 5.26 million homes from 5.37 million previously reported.

Courtesy The Wall Street Journal

The important existing inventory index increased to 12.5 months from 8.9 months. Which means it will take a year to sell off existing inventory, a substantial jump and a significant problem for the market. Normal inventory is a 4 to 6 months supply. While prices had appeared to have stabilized (median home prices rose 0.7% to $182,600 in July) because of the tax credits and speculator competition for foreclosure sales, this inventory glut will put negative pressure on prices. Ultimately I believe foreclosure speculators will create a floor under prices (based on the level of activity I have seen), so I don't think the downside will be drastic.

Jobs Reports

Last week's report on initial claims showed a MoM jump of 25,000 claimants, a 6% increase over the previous week. The 500,000 claims was a 9-month high. Initial claims had dropped to 439,000 in February, 2010, then flattened out showing a stalled recovery, and has been climbing since July.

A brighter statistic was that continuing claims were down 13,000 for the week of August 7. The four-week average is 4.527 million, the lowest since the peak in March, 2009.

Courtesy The Wall Street Journal

The bulk of job cuts have been in small companies:

eric seiger

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