The next chapter in the book entitled: The housing crisis..what they DON"T want you to know!

Here are a few interesting charts and accompanying analysis from a blog called ZeroHedge and a guy writing under the name ‘Tyler Durden’ (anyone see Brad Pitt in The Fight Club?), released yesterday, (along with my comments).

Everything that the government has done so far, with a few minor detours, has been almost exclusively focused on maintaining home prices high, by tweaking either the supply or the demand side of the housing equation. As the bulk of consumer net wealth is concentrated in the housing sector, and a wealthy and confident consumer, much more so than the banking system, is critical to the recovery of America’s economy, the Administration will do everything in its power to achieve its goal of artificially manipulating the housing market...the continued pursuit of such flawed policies by the Fed and President Obama merely pulls the market ever further away from its equilibrium, thereby making the anticipated second dip so much more likely and not that far off in the distant future...After being extended once by the Obama Administration, the tax credit will expire at the end of April—putting downward pressure on demand for existing home sales. That prospect will make it more difficult to clear out the next wave of foreclosures, prompting another down leg in US house prices.

I have blogged about the "shadow" inventory before...it is spoken about amongst real estate agents and mortgage professionals...but they don't report about it in depth on CNBC, MSNBC or the like...take a look at the chart below:

In Florida, almost 49% of all homes with mortgages are in a "negative equity" position...on top of that, about 1 in 4 Florida homeowners with a mortgage is 30 or more days delinquent.

I don't know the actual (or make believe) lender figures...but common sense tells me that someone who is unemployed, upside-down on their mortgage and is behind on their mortgage payments, is NOT going to ravage their IRA or borrow from their mother-in-law to pay all of the banks penalty fees, late fees, interest fees and lawyer fees to get caught up with the bank ...but that's just my opinion.

In a recent post, I spoke about one of the major roadblocks to a housing recover being the "real" unemployment rate. And this issue is a driving factor in the "strategic default" wave. A record 15 million Americans are unemployed and another 9 million are underemployed. However, just as significant is the roughly 10 million households in a negative home equity position of worse than -20%, for whom strategic default - failing to pay when one could - is a very real option.

Now for the elephant in the room: Interest rates...this was one prong of the two pronged lightening rod for the housing crisis blame...the other being lax lending standards. "They" blame artifcially low mortgage rates as the first major contributing factor. Then WHY is no one saying the same thing now? The Fed is buying MBS in the open market in an effort to KEEP the mortgage rates (artificially) low. Aggressive central banks’ rate cuts along with large amounts of agency MBS purchases by the Federal Reserve have lowered mortgage rates by over 100 bps since the height of the financial crisis.

Although we don’t expect policymakers to raise the fed funds rate until 2011, mortgage rates have already started to head higher, and could keep climbing towards the end of the first quarter when the Fed’s $1.25 trillion agency MBS purchase program is completed. Those purchases made up almost 50% of all MBS issuance last year, and despite the improvements in the securitization market, their absence will likely have a material impact on rates (See Chart above).

As stated by the writer of the original article: "And there you have it: the best that the government can hope for is to extend and pretend, and to avoid presenting the sad but very simple reality to the American public. Because lack of knowledge is half the battle."

I couldn't have said it better myself!

Thanks for reading...Steve Jackson

Home prices and unemployment

Location, location,location....this used to be the three most important words for real estate value...now it may be jobs, jobs, jobs.

IMHO, the governments compiling and releasing, and television news' subsequent spinning of the (un)employment figures is as slanted as the National Association of Realtors economists recommendations in 2005 that it was a good time to buy.

It makes basic, undeniable sense that if people do not have jobs, they can't:
a) buy a house
b) pay for the mortgage on the house they own

But, it's not the "unemployed" figure that is important (or accurate) but the "no longer looking for a job",  "under-employed" AND "employed but not making any money" figure is what the bigger problem is today!

An exodus of discouraged workers from the job market kept the U.S. unemployment rate from climbing above 10 percent in December. Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent...about 1.7 million Americans opted out of the workforce from July through December, a Labor Department report showed. The share of the population in the labor force last month fell to the lowest level in 24 years. So eliminating almost 2 million unemployed from the reported figure was pivotal in keeping the reported rate down.

The "official" jobless rate when including the so-called underemployed -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- rose to 17.3 percent in December. Also, NOT included in that 17.3% figure are the "officially employed" (business owners, self employed, commissioned sale people) but making no money, or much, much less money than before. I personally know many General Contractors, self employed construction industry tradesman, mortgage brokers, real estate agents, and many, many business owners or independent sales professionals whose incomes have declined to zero or may even be coming out of pocket/savings to keep their businesses open...these people are not counted in ANY govt. reported employment figure.

The flip side of the jobs problem is the foreclosure problem...the foreclosure problem will lag the jobs issue by a year or more...Think of it this way: people lose their jobs or suffer a reduction in income, they don't immediately stop making mortgage payments-they try to keep up as long as they can...then if they finally decide that they can no longer keep up with the mtg, the banks are taking a long, long time to foreclose (which is the subject of another post to come). So...contrary to the rosy picture being painted, we have an uphill climb in regards to home values.

But...as a result of the current govt. interventions in the housing market (tax credits, interest rates), the next 4 months or so should present a good opportunity to get a home sold.