Home Foreclosures Continue to Surge. What Does It All Mean?

Larry, I’ve been watching TV programs that illustrate homebuyers in today’s market. It does seem the requirements to buy a house now are nearly strangulating the market as they have gone over-board.

What Does It Mean? added to the above, Civil Unrest?

#1.National Guard recruits Interment/Resettlement Camp Specialists. (”advanced responsibilities” issues such as supervision and administration, responsibility for the “prisoner/internee” population, “custody/control for the operation of an Enemy Prisoner of War/Civilian Internee camp,” and work on “custody/control for the operation of detention facility or the operation of a displaced civilian (CD) resettlement facility.”

#2.National Guard drill at high school to prepare for possible H1N1 riot (or any civil unrest/threat as described by Homeland Security and those objecting to immunization will be held in a quarantined interment/resettlement camp?)
Scary Stuff

I’ve been going to sheriff’s sales in Ohio for six months in an effort to find an investment that might give me at least a partial hedge against the massive inflation that’s coming. To make a long story short you can’t get a deal. The mortgage lenders are gobbling up all of the real estate foreclosures at these sales.

The property going up for foreclosure get a current appraisal and must sell for a minimum of two thirds of the appraised value. The lenders will bid on those properties way passed the appraised value up to the loan default amount even though they can’t sale it for any amount. I guess it shows up as an asset on their books. These houses just continue to stay empty and get vandalized in many cases. I don’t think they can continue to artificially hold up prices when the avalanche of foreclosures continues. Your TARP funds at work.

I have followed over 1000 sheriff sales in the neighborhoods I’m interested in and only three high bid were not the lender or its agent.

When you look at the coming default in commercial real estate along which the continuing defaults in residential real estate, the big bust is yet to come and it will be horrific.

The “Bear Trap Rally” Is About To Snap???

By Ambrose Evans-Pritchard, International Business Editor
Published: 8:26PM BST 12 Aug 2009

A bear market is being forecast for after the summer Photo: REUTERS
Britain’s Uber-bear is growling again. After predicting a torrid “relief rally” over the early summer, Bob Janjuah at Royal Bank of Scotland is advising clients to take profits in global equity and commodity markets and prepare for another storm as winter nears.

“We are now in the middle of a parabolic spike up,” he said in his latest confidential note to clients.

“I expect this risk rally to continue into – and maybe through – a large part of August. What happens after that? The next ugly leg of the bear market begins as we get into the July through September ‘tipping zone’, driven by the failure of the data to validate the V (shaped recovery) that is now fully priced into markets.”

The key indicators to watch are business spending on equipment (Capex), incomes, jobs, and profits. Only a “surge higher” in these gauges can justify current asset prices. Results that are merely “less bad” will not suffice.

He expects global stock markets to test their March lows, and probably worse. The slide could last three months. “A move to new lows is highly likely,” he said.

Mr Janjuah, RBS’s chief credit strategist, has a loyal following in the City. He was one of the very few analysts to speak out early about the dangerous excesses of the credit bubble. He then made waves in the summer of 2008 by issuing a global crash alert, giving warning that a “very nasty period is soon to be upon us” as – indeed it was. Lehman Brothers and AIG imploded weeks later.

This time he expects the S&P 500 index of US equities to reach the “mid 500s”, almost halving from current levels near 1000. Such a fall would take London’s FTSE 100 to around 2,500. The iTraxx Crossover index measuring spreads on low-grade European debt will double to 1250.

Mr Janjuah advises investors to seek safety in 10-year German bonds in late August or early September.

While media headlines have played up the short-term bounce of corporate earnings, Mr Janjuah said this is a statistical illusion. Profits were in reality down 20pc in the second quarter from the year before. They cannot rise much as the West slowly purges debt and adjusts to record over-capacity. “Investors are again being sucked back into the game where ‘markets make opinions’, where ‘excess liquidity’ is the driving investment rationale.

“The last two Augusts proved to be pivotal turning points: August 2007 being the proverbial ‘head-fake’ when everyone wanted to believe that policy-makers had seen off the credit disaster at the pass, and August 2008 being the calm before the utter collapse of Sept/Oct/Nov… 3rd time lucky anyone?”

The elephant in the room is the spiralling public debt as private losses are shifted on to the taxpayer, especially in Britain and America. “Ask yourself this: who bails out Government after they have bailed out everyone?”

Mr Janjuah said governments might put off the day of reckoning into the middle of next year if they resort to another shot of stimulus, but that would store yet further problems. “If what I fear plays out then I will have to concede that the lunatics who ran the asylum pretty much into the ground last year are back in control.”

Over at Morgan Stanley, equity guru Teun Draaisma thinks we are through the worst. “We were on course for a Great Depression in February, but Armageddon was avoided. Governments did not repeat the policy errors of the 1930s.”

“We have seen the lows of this crisis. This is a genuine rebound rally, and it has been short by historical standards so far,” he said.

Mr Draaisma, who called the top of the bull market almost to the day in mid-2007, has crunched the worldwide data on 19 major stock market crashes over the last century. They show that the typical rebound rally (as opposed to bear trap rallies, when markets later plunge to new lows) lasts 17 months and stocks rise 71pc. The 1993 rally in the US was 170pc over 13 months. Finland’s rally in 1994 was 295pc. Hong Kong rallied 159pc in 2000. This rebound is only five months old. The key indexes have risen 49pc in the US and 42pc in Europe. Mr Draaisma advises clients to stay in the stocks for now, but stick to telecom companies, utilities, and oil.

Yet he too expects a nasty correction once this rally falters. The usual trigger at this stage of the cycle is when central bankers start to make hawkish noises, typically a couple of months before the first turn of the screw (normally a rate rise, but in this case an end to “quantitative easing”. “As long as policy-makers are talking about how fragile the recovery is, equities are unlikely to go down much.”

This moment can be hard to judge. There has already been rumbling from some governors at the US Federal Reserve and from the European Central Bank’s Jean-Claude Trichet. Markets are pricing in rates rises by early next year.

The pattern after major financial bust-ups is that the rebound rally gives way to another fall of 25pc or so, lasting a year, followed by five years of hard slog as stocks bounce up and down in a trading range, going nowhere. Mr Draaisma suggests taking a close look at the chart of Japan’s Nikkei index from 1991 to 1999. Gains were zero.

We are in uncharted waters, however. Monetary and fiscal stimulus has been unprecedented. Russell Napier at Hong Kong brokers CLSA says a powerful bull market is already taking shape as the American giant reawakens. Perma-bears will be left behind. He said: “It is dangerous to be in cash.”

When the finest minds in the business disagree so starkly, the rest of us can only shake our heads in confusion.

What Recovery?

I’ve been going to sheriff’s sales in Ohio for six months in an effort to find an investment that might give me at least a partial hedge against the massive inflation that’s coming. To make a long story short you can’t get a deal. The mortgage lenders are gobbling up all of the real estate foreclosures at these sales.

The properties going up for foreclosure get a current appraisal and must sell for a minimum of two thirds of the appraised value. The lenders will bid on those properties way passed the appraised value up to the loan default amount even though they can’t sale them for any amount. I guess it shows up as an asset on their books. These houses just continue to stay empty and get vandalized in many cases. I don’t think they can continue to artificially hold up prices when the avalanche of foreclosures continues. Your TARP funds at work.

I have followed over 1000 sheriff sales in the neighborhoods I’m interested in and only three high bids were not the lender or its agent.

When you look at the coming defaults in commercial real estate along with the continuing defaults in residential real estate, the big bust is yet to come and it will be horrific.

Larry, here is another factor that will increase coming home foreclosures, one that I have not seen discussed:

There used to be an option for elderly homeowners to allow them to stay in their mortgaged homes called a “reverse mortgage.” Depending on the equity the homeowner had in his home, the monthly payments could be reduced, eliminated, or even reversed. The homeowner would eventually lose the home, but some senior citizens would then be able to stay in their homes and not face foreclosure. Getting kicked out of your home when you are retired and have lots of stuff to move is not easy.

However, since home equities have shrunk so drastically, the “reverse mortgage” possibility is no longer an option in a great many cases: more retired folks on the streets!

Larry,

I have been telling it for a long long time. The drive of the American economy is not the DOW, it is the Home ownership rate. And until we listen to Taleb and capitilize private debt, people when they discover they are under water, will elect to walk away from their home, flooding the market with distressed home sales and driving the apraisal comparables down.

Exemple in point : a very good friend of mine has her primary residense in foreclosure. It is located in prime location in Florida, It is a beauty and was estimated and refinance in 2006 for 720k. She finally got a short sale offer for 275k a month ago. Because the short sale process is so complex and backlogged, she still was served for foreclosure a week ago.

Her level of stress is unbelievable. This is a woman who has never gotten behind her bills before, ever.

She contacted the bank numerous times, offered them many solutions (rent back, refinance at realistic level of value), they always refused.

This property will finally sale around 300k if the short sale goes thru or for even less if it goes in foreclosure.

She was willing to sign papers on 350K with partial equity given to the bank for its effort. They refused.

This is madness. The banks are refusing to deal with the reality. They are pushing decent people (including millions of children) out of their homes, psychologically grinding them in the meantime, affecting their capacity to work, breaking their marriage and family, imposing unecessary change of residense, commuting time and school district, all of which have ripple effects on the American productivity.

The unseen cost of a foreclosure on the family is enormous.

They NEED to listen to Taleb. The stimulus money not spent needs to be redirected in a massive amd seamless program of capitalization of private debt.

Every homeowner under water, in default or not, need to be offer the option of refinancing at realistic value, with the bank taking a redefined equity share of the home in return. That would lower mortage payments hence freeing some income which would go to consumer consumption, that would keep people in their homes and communities, and that would finally gives realistic numbers for the banks exposures.

I saw an ad on TV today, telling people that they may be eligible for up to $30,000 in downpayments.

Over the last few months, the military has steadily increased its collaboration with local law enforcement in violation of Posse Comitatus, most notably and egregiously in Alabama and Tennessee (see Damage Control: U.S. Army Investigates Deploying Troops in Samson, Alabama and Massive Checkpoint Operation in Tennessee Violated Posse Comitatus, Fourth Amendment).

Of course, the current swine flu is not H5N1. It is the H1N1 virus. It is however an odd duckling with a suspicious composition: the virus contains genes of human, bird and swine origin.

As the virus spreads, more and more people — and even a few virologists — believe H1N1 is a human-engineered pathogen. On April 25, the journalist Wayne Madsen wrote:

Our Mexico City source said a top scientist for the United Nations, who has examined the outbreak of the deadly Ebola virus in Africa, as well as HIV/AIDS victims, concluded that H1N1 possesses certain transmission “vectors” that suggest that new flu strain has been genetically-manufactured as a military biological warfare weapon. The UN expert believes that Ebola, HIV/AIDS, and the current A-H1N1 swine flu virus are biological warfare agents.

“Our best intelligence estimate is that pandemic Avian Flu has already been created through genetic engineering in the United States, fusing the deadly genome of the 1918 Pandemic, misnamed the ‘Spanish Flu’, with the DNA of the innocuous H5N1 virus in a growth medium of human kidney cells, according to the National Institutes of Health and the vaccine’s manufacturer. Some virologists believe that this would insure that the man-made mutant virus recognizes human cells and knows how to invade them,” writes Rima E. Laibow, MD, head of the Natural Solutions Foundation, a citizen watchdog group monitoring the pharmaceutical industry.

http://www.infowars.com/swine-flu-and-martial-law/

spamy ate my comment.

Spaminated–admin, please rescue. Thanks.

OK back on topic

Warning over US cash-for-clunkers scheme

http://www.ft.com/cms/s/0/940088ae-8830-11de-82e4-00144feabdc0.html

Could cash for houses be next? Banks in some areas are bulldozing nearly finished houses to keep from completing them. Makes perfect sense to me. NOT

Sorta like when the governemnt destroyed crops to drive up food prices, this brillant idea extended the depression by several years.

This seems to be an extension of the old saying about “Recession is when your neighbor loses his job. Depression is when you lose yours”. As long as the “experts” aren’t losing their homes, they say “what problem?”.

I’ve be thrown in the spam deep dark hole too.

I am in California and I feel like I am in a new kind of war zone. Friends losing their homes and their jobs, “for lease signs” in many small businesses, my favorite department store closing. There is no rubble or bodies in the streets, but lives are in disrepair and spirits are broken.

Thank you for that good overview, Larry. Your posts are always greatly appreciated.

What does this mean? That the Big Lie continues. Until the Administration is willing to force our banks and financial institutions to come clean, stop the highway robbery of the taxpayer and desist in fraudulant accounting practices, any recovery is an illusion at best and criminal at worst. The average consumer cannot be expected to hoist this economy out of its drift or eventual tailspin. The American consumer is tapped out or unemployed or still flailing around under massive debt.

Until our politicans jump from the pockets of the very people who ushered in this debacle, we will continue on the road to ruin.

The Big Lie is being perpetuated by the powers that be. And people need to be just as angry about that as they are with the health care mess. Otherwise, we’re headed for a blackhole of our own making.

Thanks for some truth, Larry. It’s hard to come by anymore.

I’m guessing those top 5 foreclosure states were home to a huge chunk of housing market speculation before the bubble burst. Easy come, easy go.

Until now, the government’s foreclosure mitigation efforts were based upon affordability. This solution was effective in past housing downturns, but this time it is different. The housing bubble especially in the 4 “sand” States of California, Nevada, Florida, and Arizona is the Game Changer. The level of negative equity is so high that we cannot expect a homeowner to continue making affordable payments on Underwater homes where it may take years to cover the difference between the mortgage and the home value. In fact, recent studies conclude that the number of “strategic defaults” will rise as close to 50% of homes will be Underwater by 2011. There is more…75% of most toxic mortgages (Alt-A and Option ARMs) are concentrated in these 4 States hat are most at-risk of Strategic Default; and these mortgages are the underlying assets of the MB and CDO investments hat are cloggng the balance sheets of the banks and losing value for investments held by pension funds, credit unions, etc. The Congressional Oversight Panel concluded that the banks have these Troubled Assets that are of increasing concern for their solvency. This time it IS different. We must no only address affordability… We must also address Negative Equity before it is too late.

Folks,

One of the most important sites I visit everyday is Patrick.net which compiles all the latest news on this economic calamity and gives the real news on the housing collapse.

http://patrick.net/housing/crash.html

Where are the jobs dumbo promised us? Oh that was just rhetoric. That’s right. Check out that u tube vid called invisible and get a sneak peek of what America will be like after this dumb fake president gets done with USA. No hope at all. Screw the hope and change. Where’s the jobs? Where’s the fix on the economy? Oh, he doesn’t know how to do that. That’s right. forgot. Now what do we do? A lame brained scerwball is acting like the leader and we are not getting anything he promised ’cause he’s a self serving pathological liar.

Oh I forgot to add incompetent to my post
An incompetent man sits in the highest seat of the land..What a nightmare. But he’s colored so that makes up for it? Holy moly.

This guy refers primarily to SoCal but the observations are good. http://www.doctorhousingbubble.com/

jobs, jobs, jobs, and GOOD jobs. that’s what we need, and it isn’t going to happen overnight. it has taken decades to run this country into the ground, and it is going to take years, at least, to rebuild our economic foundation.

jobs, jobs, jobs, and GOOD jobs. that’s what we need, and it isn’t going to happen overnight. it has taken decades to run this country into the ground, and it is going to take years, at least, to rebuild our economic foundation.
Sorry, forgot to add great post! Can’t wait to see your next post!

this proves that th government’s mandated foreclosure moratorium simply delayed the inevitable. the housing market needs to bottom so that it can reset and rebuild. placing a moratorium on it will only postpone the market bottom and as a result would make the landing a lot harder.

all government intervention in any market does not have a postive impact in the long term.

as long as millions of people are not finding jobs, the foreclosure market will keep accelerating. what the government needs to do is to get out of the way and let the housing market find the bottom so that it can start the pricing correction in earnest. house prices are still bloated due to the foreclosure moratorium…since the government is desperately tying the hands of the free market it is digging a deeper hole in the process. if the foreclosures were allowed to accelerate at the beginning of the year it would have bottomed this summer but now the bottom looks like it’s still 6 months ahead. not a good scenario since the housing market is one huge anchor that’s keeping the economy from recovering.

let the forecolsures occur in earnest and allow the market to bottom out. reinflating the housing bubble is not the answer. the pricing for real estate form bubble levels need to correct, there’s no ifs ands or buts about it.

Okay, so the federal government owns the bank that owns the houses, right? So, the federal government can then redistribute the wealth by distributing the houses to whomever it likes, right? Reparations anyone?

The surge in home foreclosures means the wealth of the general population is disappearing with no way to recover. This is directly connected to jobs and wages. When unemployment was to hit 8% it was projected, by Credit Suisse home foreclosures would be 8.1 million over four years. Unemployment is now 9.4%. See what its means.

When people with degrees, experience and training can’t find work. When college graduates can’t find work in their field of degree. When wages are low. People can not pay the rent. Simple cause and effect.