There’s always something to howl about

“Americans will downsize and live multigenerationally, in order to offset the fraud they know exists in real estate. Until there is wage growth, and that could be years or decades away, people will not trust any upward movement in real estate values.”

A searing indictment of The Bernanking System in Business Insider:

Once people start to come out of negative equity, even more of them will sell and try to get out from under the cloud they are under. So, the housing bubble orchestrated by the Fed and by the hedge funds and by the wealthy could free up massive inventory. The average person fears negative equity. The Fed will not erase that memory.

The only way people will risk negative equity is if their house prices are cheaper than rent. But the artificial inflation of housing prices will do nothing but push the average Joe away from housing.

Keep in mind that about 4.4 million houses were sold in 2011 and only 2.4 million mortgages were taken out for purchase. That is a mortgage depression and the rise in house prices has not changed that mortgage depression.

People are learning that the uptick in prices is a scam, both by banks withholding massive inventory, and by the Fed making more easy money available to the rich. Once they own most of the inventory, they will be forced to initiate a housing bubble or they will be stuck with the properties.


19 Comments so far

  1. Mark Madsen September 27th, 2012 3:05 pm

    >>Once they own most of the inventory, they will be forced to initiate a housing bubble or they will be stuck with the properties.<<

    So the million dollar question – How and when will they initiate the next housing bubble?

  2. Greg Swann September 28th, 2012 8:16 am

    > So the million dollar question – How and when will they initiate the next housing bubble?

    I started to see it in Phoenix in April of 2011.

  3. Jeff Brown September 28th, 2012 9:46 am

    Though I know you disagree, Greg, I think much of what could happen next is, at least in part dependent upon the headlines we all read/hear on the first Wednesday morning of November. We do agree on this current so-called ‘appreciation’ being bogus.

    Also, an aside to your financing observation. Roughly 1/3 to 40% of all homes have been owned free ‘n clear for a very long time.

  4. Greg Swann September 28th, 2012 12:47 pm

    > Though I know you disagree, Greg, I think much of what could happen next is, at least in part dependent upon the headlines we all read/hear on the first Wednesday morning of November.

    No, I don’t disagree. I’m sure you’re right. I’ve expected to see more shenanigans in these months leading up to the election, but all bets on everything are off if Obama wins. You can only beat a pack animal so much before it turns on you.

    > Roughly 1/3 to 40% of all homes have been owned free ‘n clear for a very long time.

    How lucky for those folks to have their FMV (Ed: whazzat?) kicked around so much. 🙁

  5. Joshua Dubin September 28th, 2012 2:29 pm

    In the Florida real estate market, the banks are artificially driving prices up by control the supply on the market and underpricing homes to attract multiple offers above list price.

  6. Gabe Sanders September 28th, 2012 3:53 pm

    Housing won’t truly recover until the economy does, I agree. Though the current run on rental properties is driving rent to be less affordable than purchase. But, you still need to qualify.

  7. Tom Wolf October 1st, 2012 2:38 pm

    The true quantity of shadow inventory appears to still be a mystery despite the amount of coverage it gets. Although various sources quote different numbers, they do all seem to agree that the shadow inventory decreased last year, not increased. You would think that the quantity of shadow inventory would be a much more quoted number given its importance.

  8. Dylan Darling October 2nd, 2012 1:09 pm

    Every expert has an opinion on the housing market… but that’s exactly what it is- an opinion. Nobody has a crystal ball. I personally think the shadow inventory is regional. I don’t see much coming for our area, but I think there will be more for other areas of the country. But with rates at 3% or so, why not buy if it’s cheaper than rent and the cost of building new (the case here in Bend). We still get to write off interest… for now.

  9. Sean Purcell October 2nd, 2012 2:07 pm

    Greg, not sure I agree with the article’s initial premise… Why will lots of homeowners sell their homes once they are positive equity? Something about the “cloud” they are under?

    I believe that economic lessons writ large are learned by the younger generation, not the actual generation going through it first hand. The young people today will not view real estate as a cash cow, or an investment, or universally good idea, or even a sound idea some of the time, as their parents and grandparents did. But the parents and grandparents themselves… old dogs, new tricks.

    I actually envision current homeowners being relieved once they are positive equity, thus reassuring themselves that all is back to “normal” again…

  10. Sean October 2nd, 2012 5:04 pm

    What does this term “normal” for homeowners and the economy at large now represent? The policy of the Status Quo since 2008 boils down to this assumption: if we prop up an artificial economy long enough, it will magically become real. This is an extraordinary assumption: that the process of artifice will result in artifice becoming real.

  11. Tom Wolf October 2nd, 2012 6:03 pm

    @Dylan, I’m glad you brought up the “regional” aspect of shadow inventory. My pet peeve is real estate discussions based on national news and data. Of course national economics matter, to an extent. However some estimates put 40% of the shadow inventory in California, and only 5,000 homes here in Phoenix. That is a very small amount, if true.

  12. Paul Francis October 14th, 2012 12:59 am

    If it’s truly an asset and you know what an asset is to begin with, things like this are trivial.

    We’ve got a little bubble going on in our area (especially with Nevada AB 284 that went into effect on 10/01/11) but the mortgage you can get right now is still a lot cheaper then paying rent. (Even the cash on cash returns are still above 6% using conservative rental numbers.)

    So people can wait and wait to see if the prices will come back down and spend $5,000+ in rent or live in their parents basement waiting for that day and maybe someday they’ll be right.

    However, There’s a big difference from 2006 when people were paying $1,500 more for a mortgage then what they could rent for… and today when you can have a mortgage payment $400 less then paying rent.

    The Fed is the Fed and the games being played is what it is and people can complain about it all they want…. but what can really be done about it?

    The Fed can keep printing up money like the Weimar Republic… people who owned things of value still made out.

    It’s the paper that becomes worthless.

  13. Paul Francis October 14th, 2012 1:05 am

    “It should be important to the Fed for the good of the nation,..”

    Lots of laughing… that’s the Author’s big mistake in his thinking when writing up that article in the first place.

  14. Josh Malone October 16th, 2012 8:05 am

    I agree and though there are some positive signs is some markets in a lot cases it seems to be an attempt to further strengthen the market. However it seems that the media and some agents give some false hopes that kind of give buyers a calling wolf syndrome. It in many area is considerably cheaper to own than rent. Why do we not just leave it at that and be honest about the market meaning we really cant say with any real certainty what will happen but it is cheaper and a better investment than continuing to rent especially over the long haul.

  15. cooksquared October 16th, 2012 1:10 pm


    I also disagree with you. I dont think banks are hording a massive amount of homes. I actually think that the distress home sales market is actually very liquid in most major markets (Florida, Las Vegas, Phoenix, etc.).

    These homes are being bought by investors of all shapes and sizes and they are fixing and flipping or more likely fixing and renting. These investors are certainly driving up the price, which is why you are seeing prices rise rapidly on the low end in those places.

    I dont necessarily think the exit needs to be a sale of the home. I think there are a lot of people working very hard to create a business out of renting single family homes. The yield is good (7 – 9%)and the renters tend to be more stable with less turnover. At some point, I think you will see some of these investors spin their portfolio off to a public company, which will continue to scoop up these rental properties.

    If the market gets truly hot again, you will see some selling, but if not, I think you will see investors content to buy / hold. This will reduce supply and stabilize housing pricing.

    And yes, I think the current appreciation is real. There was a serious overcorrection in the market, so I think we are normalizing.

  16. Thomas A B Johnson October 19th, 2012 10:41 pm

    I doubt half the residential real estate transactions are cash as there is some portion of hard money lending. That said, there must be some consternation at the Fed and among the Wall St banksters. The cash that is being spent on houses will not return to the fee laden mutual funds in retirement plans that pay for Bentleys in SoHo.

    Once a rent house is spinning cash, Wall St will not be able to front run, skim or steal those assets again. Anyone who can get a 30 year fixed rate loan at these rates is getting the deal of a lifetime. The banks are doing everything in their power to avoid holding 30 year 3.5% paper. I get some satisfaction from this musical chairs. The borrower will have an inflation indexed seat for 30 years and the banksters will remain standing looking around for some other muggles to rob.

  17. jason October 23rd, 2012 8:40 pm

    I really think the opposite. I think once we see some homeowners getting out of the negative equity situation, they will start to look around and thinking about trading up or just laterally to a more preferable location or city. Being in a heavy 2nd home market we see people all the time either wanting to move here but can’t sell a home somewhere else or they live in a home and they are not able to physically take case of it so they want a condo. Dealing with an aging crowd it is common to see people trading old properties for properties that are more accessible or single level with no stairs. Prices going up is not going to loosen inventory

  18. Jim November 3rd, 2012 9:24 pm

    The housing bubble will increase by the sheer costs of raw materials which will continue to driveup home prices. I feel smaller homes will be the norm and rents will continue to rise. Pockets of the country will see more explosive growth. Living in Jupiter Florida we are seeing influxes of retirees no longer interested in paying high taxes and are coming South for the weather. Demand will continue to drive prices here with many of the customers paying cash so interest rates are irrelevant in the equation.

  19. john lee November 14th, 2012 4:34 am

    this is reality. good sharing