15 Reasons Housing Is Going From Bad To Worse

According to Business Insider: (Thanks L!)

The U.S. economy is in decline. The employment situation is going to go from bad to worse. Americans without jobs are Americans that cannot buy homes. Millions of Americans who are employed are finding it increasingly difficult to make it from month to month. The truth is that there is no way that Americans can afford the ridiculously inflated home prices that we have seen over the past decade any longer.
So, yes, the U.S. housing market is headed for a complete and total nightmare.

I couldn’t agree more, so here’s their list of 15 reasons that “the U.S. Housing Market Is Headed For A Complete And Total Collapse”. (And why I agree with them.) You should follow the above link though and check out all the graphs they’ve got to back up their thesis.

1. Record low home sales- New home sales are now at their lowest on record, and existing home sales began a steep decent in July. (And this is the busy time of year. Wait until winter.)
2. New home sale construction is also near record lows. There is already an excess of houses. (This is actually a good thing- but it does tell you how bad things are.)
3. Demand for mortgages is at a 13 year low. (Showing that low interest rates are insufficient to stimulate demand.)
4. Foreclosures are at record highs. (And getting worse.)
5. Repos are at an all time high. (See #4.)
6. Banks are writing off a massive amount of debt. (And they are going to be writing off a lot more before they are through.)
7. Record delinquencies- more than 10% of all Americans are behind on their mortgage. (Hence #4.)
8. Banks have significantly raised their lending standards. (Low interest rates aren’t useful to people who don’t qualify.)
9. Home prices are still too high and out of line with what people can afford. (Especially upper end real estate. With reduced income and no “wonky” financing, the McMansion market is being killed.)
10. With 28% of all households having one adult currently looking for employment, unemployment levels are high. (And unemployed people don’t buy homes.)
11. Bankruptcies are on the rise. (See #10 and #15)
 12. Even Obama is bearish on housing. (Business Insider found a great “grumpy face” of the president for this one.)
13. Tax credits pulled home sales forward- shrinking current demand. (And future demand as well.)
14. Fannie and Freddie could be up to $5T in the hole. (You know, I doubt I’ve typed $XT more than a dozen times in my life. That’s a big number.)
15. U.S. economy is drowning in debt. (As well as many Americans.)

Lawrence Yun, chief economist for the National Association of Realtors claims that “the worst is over” for housing. As usual, he’s dead wrong.  Massive government interference in the housing market slowed the downward slide, but the direction has remained the same, and now the velocity is starting to pick up.

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2 Comments for this entry

  1. twist says:
    August 22, 2010 at 10:03 AM

    John-

    I ended up with bad links again, even though I chose “open in same window” in the editor. It keeps ending up adding an odd piece of code.

    I managed to fix it, but maybe this is Igor’s way of reminding me that I really should work on my very poor HTML skills. : (

  2. Jim McCormack says:
    August 23, 2010 at 2:35 PM

    The housing market is headed down as soon as the foolish government market propping ends. There is 0% chance that any market is actually “stabilizing” since that implies an actual free market. “Temporarily Artificially Propped” would be a better description. See my blog post: Our Phony Real Estate Market (http://www.endingforeclosures.com/government-actions-policies/our-phony-real-estate-market). Also, see my research below.

    There is no way that home prices have reached a bottom. I analyzed the data in the NAR Home Affordability Index (HAI) from 1/1989 thru 5/2010 and found that the Median of the Ratio of Median Home Price to Family Income is 2.92 and the Average of the Ratio of Median Home Price to Family Income is 3.07. The lowest reading over this same period occurred in 12/1990 at 2.654. Therefore, it is safe to say that from a historical perspective the typical price of a median home should be about 3 times the median family income. The 5/2010 reading was just under 3 at 2.965. The problem is that we are not in a “typical” economic environment – we have record foreclosures that seem to persist and 10% unemployment. Given that the lowest reading of 2.654 occurred in 12/1990 and that our current economic conditions are far worse than 12/1990, it is logical to conclude that the ratio should be below 2.654. If the ratio declines to 2.5, home prices will decline by nearly 19%. If the ratio declines to 2.5 and family incomes decline by 5%, home prices will decline by nearly 25%. Given that personal incomes are declining and that a 2.5 ratio is probably a bit optimistic, I believe it is very feasible that home prices will decline by an additional 30%.

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