Housing Bubble 2.0: Making America More Unstable, Again

With low inflation and continuing stagnation in median wages another housing bubble is just what the doctor ordered as a cure for the last financial crisis, caused in part by the rampant financial fraud associated with Housing Bubble 1.0.

And it looks like we have yet another tech stock bubble well underway.

Meanwhile the public is distracted by the corporate media's endless coverage of clown car antics and foreign plots to pollute our precious bodily fluids.

Well done, elites, well done.

And no one could have seen it coming, again.

US Housing Starts Stuck at Lowest Levels Since 1945

Charts courtesy of John Williams at Shadowstats.

The first chart shows US Housing Starts since the year 2000.

The second chart shows US Housing Starts since 1945.

US Housing Crash; If It Bleeds, It's Buried; Congress Fiddles While the Economy Burns

Rumours of an economic recovery in the US seem to be greatly exaggerated.

The mainstream media, Wall Street, and Washington have expanded their policy of 'extend and pretend' to 'if it bleeds, it's buried.'







h/t to Michael David White's Housing Story for the charts and the tag line.

HUD Suspends Anti-Flipping Rule for FHA Loans

"As a dog returns to its vomit, so a fool repeats his folly." Prov 26:11

"Mortgagees" in this case would be the banks and their subsidiaries that have foreclosed on the home. So all you entrepreneurial flippers need to check the fine print, and perhaps team up for a percentage from the banks, who are in the driver's seat on this HUD exception to the anti-flipping rule passed in 2003.

This does provide yet another opportunity for the banks and their subsidiaries to skin more money from the foreclosure transaction with the help of public subsidy. So if you are the entrepreneurial sort, you'll have to grease the palms of the banks to gain access to the FHA for those quick flips.

The waiver from the HUD Website is here.

HUD No. 10-011
Lemar Wooley
(202) 708-0685 FOR RELEASE
Friday January 15, 2010

HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS

Measure to help bring stability to home values and accelerate sale of vacant properties

WASHINGTON - In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

"As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization."

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

"This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said.

In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

•All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

•In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.

•The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD's website.

Alternative View: Housing Prices Have Fallen Significantly Towards the Trend

Here is the graph associated with a view of the deflating housing bubble that shows we have appreciably fallen, further than the 25% in the blog entry from yesterday.



For the details on this view read here.

It appears that both sets of numbers, the ones above and the ones from yesterday, have been adjusted somewhat.

The numbers from yesterday are Indexed to 1980 = 100, and are therefore a percentage of increase.

The numbers above are nominal prices, and then adjusted for inflation using some governmental measure presumably.

One appears to be based on median prices, and the other on total transactions.

I have not yet reconciled the two views, as I am rather tired and 'under the weather,' compliments of the children's propensity to bring home their sniffles and sneezes at this time of year, the head colds that seem to linger endlessly, despite the repeated application of vitamins, chicken soup, sudafed, ibuprofen, and the occasional sip of Beaujolais Noveau. But for today at least I am, like Mr. Buffett is to the economic recovery, 'all in.'

And yes, I did finally break down and listen to the spouse, obtaining a swine flu vaccination. Perhaps it will help me think like a Fed banker and figure out their gameplan. lol.

Have Home Prices Only Fallen 1/4 of the Way to Trend?

Interesting chart to say the least.

Ben is pumping the money buttons so hard that the trend may be realized a bit higher in nominal terms once inflation kicks in.

But it may not yet be the best time to buy that new home, unless it is done for a primary residence, and with great care.

As forecast here several times earlier this year, commercial real estate will be a train wreck in 2010. That should help housing find another leg down.

New Observations.net
Values Have Fallen Only 25% of the Fall Needed to Reach Trend
By Michael White
November 11, 2009

PRICE TRENDS / WAR OF THE WORLDS (Part 4): Property owners nationwide have lost only one dollar for every four dollars they can ultimately expect to lose on their home...



Read the rest here.

US Housing in a Deep Dive Says Buba

Do banks ever stop swimming?

Ben will need to print quite a bit more manure to throw on those green shoots, tout suite.

Its almost feeding time again, chum.

Bloomberg
‘Underwater’ Mortgages to Hit 48%, Deutsche Bank Says
By Jody Shenn
August 5, 2009 15:32 EDT

Aug. 5 (Bloomberg) -- Almost half of U.S. homeowners with a mortgage are likely to owe more than their properties are worth before the housing recession ends, Deutsche Bank AG said.

The percentage of “underwater” loans may rise to 48 percent, or 25 million homes, as prices drop through the first quarter of 2011, Karen Weaver and Ying Shen, analysts in New York at Deutsche Bank, wrote in a report today.

As of March 31, the share of homes mortgaged for more than their value was 26 percent, or about 14 million properties, according to Deutsche Bank. Further deterioration will depress consumer spending and boost defaults by borrowers who face unemployment, divorce, disability or other financial challenges, the securitization analysts said.

“Borrowers may also ‘ruthlessly’ or strategically default even without such life events,” they wrote.

Seven markets in states with the fastest appreciation during the five-year housing boom -- including Fort Lauderdale and Miami, Florida; Merced and Modesto, California; and Las Vegas -- may find 90 percent of borrowers underwater, according to the report.

The share of borrowers owing more than 125 percent of their property’s value will increase to 28 percent from 13 percent, according to Weaver and Shen.

Home prices will decline another 14 percent on average, the analysts wrote.

Why Is This Bubble Different From All Other Bubbles?

This Bubble is different from all other bubbles not because of its size, which is truly enormous, but because home ownership is much more broadly held by the public and more integral to the real economy than all the other bubble components which the lunatic Fed has nutured in the US in the last 100 years.

This is going to leave a mark.

How Low Are US Home Prices Headed?

Obviously this is going to be a difficult question to answer since the housing markets in the US are not homogeneous. There are significant 'hot spots' on the coasts and in highly overbuilt areas.

Here is a chart based on the Shiller Home Price Index. It shows the geometric mean on US housing back to 1890. It has a growth rate of 3.4%.

So one might estimate that if housing prices revert to that very long term mean, depending on how fast they revert we might see them roll back all the way to 1995 pricing.

We would contend that the trend back to 1890 overlooks the significant price inflation that occurred since the US left the gold standard under Nixon, which is all too painfully evident on the chart.

We have drawn a very simple linear regression of that price change since 1970 rather than 1890 in red.

Based on that, our own estimate is that on average housing prices will revert to the levels which they were at in the year 2000 for a particular home or its comparables, the price at which its value is most likely to stabilize. We would tend to treat 1995 as a 'lower bound' which might be more valid for those areas which had appreciated the parabolic increases from the bubble period.

Here is a chart that shows the major Case-Shiller Home Price Indices since 1993.

There is quite a bit of data, but the point is to show just how unevenly parabolic the housing bubble became, and how it diverged significantly after 2000 when Greenspan unleashed the bubble economy with the repeal of Glass-Steagall.

It was more like a Ponzi scheme with certain areas most vigorously targeted when seen from this vantage point. Therefore we ought not to expect the declines to be of equal percents as well. Some made more, some will lose more.

The Case-Shiller US Housing Indices Since 1993