Housing Market Sinks Beneath the Waves

The markets gave no clear sign of their intentions yesterday. The Dow fell 30 points. Gold rose $8.

And this morning, stock markets in Asia dropped. Earnings are up, just as they are in America. But earnings have a “last waltz” sound to them. AP reports:

New figures from Japan offered a sobering reminder that the world’s No. 2 economy remains fragile: The jobless rate rose, deflation deepened, and factories made fewer cars and mobile phones.

There’s news from the housing market. This update from Bloomberg:

About 18.9 million homes in the US stood empty during the second quarter as surging foreclosures helped push ownership to the lowest level in a decade.

The number of vacant properties, including foreclosures, residences for sale and vacation homes, rose from 18.6 million in the year-earlier quarter, the US Census Bureau said in a report today. The ownership rate, meaning households that own their own residence, was 66.9 percent, the lowest since 1999.

Lenders are accelerating foreclosures as borrowers fall behind in mortgage payments after the worst housing crash since the Great Depression. A record 269,962 US homes were seized in the second quarter, according to RealtyTrac Inc. Foreclosures probably will top 1 million this year, the Irvine, California- based data company said in a July 15 report.

“There are a lot of people losing their homes and either moving in with family or renting places to live,” said Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts. “Foreclosures are still going up.”

Foreclosure filings climbed in three-quarters of US metropolitan areas in the first half as high unemployment left many homeowners unable to pay their mortgages, according to RealtyTrac Inc.

The number of properties receiving a filing more than doubled from a year earlier in Baltimore, Oklahoma City and Albuquerque, New Mexico, the mortgage-data company said today in a report. Notices of default, auction or bank seizure rose more than 50 percent in areas including Salt Lake City; Savannah, Georgia; and Atlantic City, New Jersey.

“Foreclosures are spreading out from areas that had been hardest hit,” Rick Sharga, senior vice president for marketing at Irvine, California-based RealtyTrac, said in a telephone interview. “We’re dealing with underlying economic weakness as opposed to unsustainable home prices and bad loans.”

Okay…so the housing situation isn’t great. But housing is not a leading indicator. It’s a lagging indicator. It’s what happens after people have lost their jobs, for example.

But then, as more and more foreclosures happen, more and more houses are available for purchase – many in desperate circumstances. Prices tend to fall. And then, people who still have jobs and houses find that their net worth isn’t what it used to be.

Already, millions of people are underwater. As housing prices fall, millions more will slip beneath the waves. Some will go down with the ship. But many will take to the life boats – sending back the keys instead. This will add to the number of foreclosures and to the inventory of unsold and vacant houses.

When does it end? It ends when it comes to rest on the bottom.

Where’s that? No one knows. But just as houses tend to be priced at more than they’re really worth in a bubble, they tend to be priced at less than they are really worth in a bust.

About Bill Bonner 144 Articles

Affiliation: Agora Financial

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.

Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.

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