Time to Buy a House? Not on Your Life!
Soon the Foreclosure Floodgates Will Open and Prices Will Plunge
Anyone who buys a house in today’s market should be aware of the risks. They should know that current prices are not supported by fundamentals, but by unprecedented manipulation by the Fed, the Obama administration, Wall Street Private Equity investors, and the nation’s biggest banks. If any of these main-players withdraws or even reduces their support for the market (in other words, if the banks release more of their distressed inventory, if rates rise, if PE firms buy fewer homes, or if the Congress curtails current mortgage modification programs), housing prices will fall. Given the increasing volatility in global stock and bond markets in recent weeks–which is likely to intensify as the Fed implements its exit strategy from QE– interest rates will continue to fluctuate putting downward pressure on housing sales and prices. The impact the Fed’s policy will have on markets and the economy is unknown. The Central Bank is in uncharted water. That makes it a particularly bad time to buy a home. Caveat emptor.
When we say that fundamentals are weak, it means that the factors that typically drive the market are not strong enough to boost sales or push up prices. In a normal market, “first-time homebuyers” and “move up” buyers would represent the vast majority of sales. In today’s market, these two “demand cohorts” are actually quite weak, which is to say that current prices are not sustainable. Consider this: According to Lender Processing Services (LPS) Mortgage Monitor for April, there are “4,699,000, or 9.76% of home loans delinquent or in foreclosure as of April 30th”…” (“Mortgage Delinquencies Down….But a Record 843 Days to Foreclose“, Naked Capitalism)
So, nearly 5 million homes are either seriously delinquent or in some stage of foreclosure. This unseen backlog of distressed homes makes up the so called “shadow inventory” which is still big enough to send prices plunging if even a small portion was released onto the market. In other words, supply vastly exceeds demand in real terms. Now check this out from Zillow:
Rest from Counter Punch here…