Reality

By Kip Herriage
Aug 11, 2010
When stories like this (see below) hit the mainstream press, in this case Reuters, you know that things are bad. Reality is setting in for many residential home owners, and price cuts are picking up speed. This is the beginning of the next leg down in housing, and will only be exacerbated when the shadow inventory, which could amount to as many as 5 millions homes in foreclosure, finally begin to be seized by banks.

The Obama administration has given banks a free pass on their mortgage holders that have stopped making payments, in some cases for more than 2 years. In addition, and this is the point that really spells out the level of fraud taking place between the government and banks, once a mortgage customer asks for a loan modification or other form of mortgage assistance, the bank is no longer required to report this debt as an actual liability against their tier one equity. In other words, everything that we have been told about so-called stabilization and recovery in the banks balance sheets is a complete lie. Once we see these 5 million homes actually foreclosed upon, along with the 8 million or so homes that will enter foreclosure after their rates reset over the next 12-18 months, we will be right back to where we were before…with a financial system on the brink of systemic failure. And I have not even mentioned commercial real estate, where the cracks are finally beginning to become clear to all. The speed of the decline in commercial real estate…which is facing a $2 trillion shortfall in available financing over the next 2 years…is about to pick up some serious speed.

This is the reality of what the economy will look like over the next 2 years.

Add to this an unemployment rate that is headed far higher than 10%…to at least 12% by 2012…and then 14% by 2013, and is there any scenario where you can imagine the stock market going higher??

Finally, the FED announced yesterday that they will abandon their pledge to stop buying our own debt from back in March has been broken….big surprise here…and that quantitative easing will continue for some time. Desperation is setting in as the so-called experts wake up to the fact that the FED may not actually know what they are doing, and that their mistakes have likely made our future just that much more bleak.

The news cycle has turned…just like it did in mid 2008…and I fully expect the final months of 2010 to follow the same course.

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Unemployment drives more home sellers to cut price

By Lynn Adler

NEW YORK | Wed Aug 11, 2010 12:18am EDT

NEW YORK (Reuters) – Owners cut prices on one-quarter of U.S. homes listed for sale in July, a fourth straight monthly rise, as job market fallout trumped record low mortgage rates, real estate website Trulia.com said on Wednesday.

Sellers in the 50 largest cities slashed $30.1 billion from prices on houses on the market as of August 1, up from $27.3 billion in the prior month, San Francisco-based Trulia said in a report provided to Reuters before official release.

Unemployment near 10 percent, wage cuts, restrictive lending practices and home values that have fallen below their mortgage balances have left many potential buyers unable to take advantage of low rates.

“With one out of every four homes experiencing at least one price reduction, sellers are feeling no relief this summer in a market climate of fewer qualified buyers and widespread uncertainty about the job market,” said Pete Flint, Trulia chief executive.

The average discount on homes reduced at least once held at 10 percent from the original asking price in July from June.

“If buyers are unqualified to buy, it doesn’t matter how low interest rates are or how discounted a home is,” Flint said in a statement, adding that the housing market will bounce around the bottom for months.

Unemployment remained at 9.5 percent in July but would have been higher if discouraged Americans had not dropped out of the workforce.

The housing market is still gaining equilibrium in the aftermath of up to $8,000 in buyer tax credits that ended on April 30. The credit forced sales into spring months at the expense of summer activity.

During the spring sales rush, sellers cut prices by much smaller amounts totaling $22.8 billion in March and $25 billion in April, according to Trulia.

U.S. 30-year mortgage rates averaged 4.56 percent in July, according to home funding company Freddie Mac, and have since drifted to a record low under 4.50 percent.

Nonetheless, in half of the 50 largest cities, sellers last month lowered prices on at least 30 percent of the homes for sale. Foreclosures continue to weigh on prices.

The real estate market will keep languishing until the job market recovers, said Trulia’s Tara Nelson.

“Sellers need to continue to be very aggressive with pricing to compete against all the low-priced short sales and foreclosures that they’ll be on the market with, for a long time to come,” she said.

Minneapolis led in price cuts for a fourth straight month, with 42 percent of listings lowered at least once. The average discount was 9 percent for a total of $33.8 million in reductions, Trulia said, citing rising inventory and mounting competition.

Las Vegas had the biggest spike in the share of sellers cutting prices at 18 percent, a 56 percent surge, while New Yorkers cut prices on 20 percent of the listings, a 15 percent jump in the month.

Cities in California were among those with the largest increases in the share of sellers slicing prices.

Price-cutting on luxury homes listed at $2 million or more had an average discount of 14 percent from the original listing price, Trulia said. Homes in this category account for less than 2 percent of total inventory, but almost one-quarter of the total dollars slashed from asking prices.