real estate housing bust

The Coming Foreclosure Wave

Has housing hit a bottom? Fox News declared that the bottom is in, as had many other talking heads.

In fact, the reality of the situation is a "good news, bad news" scenario.

(Bloomberg) -- The wave of “option” adjustable-rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller than “feared” because many borrowers will default before their bills change, Barclays Capital analysts said.

So you see, the coming tsunami of foreclosures will be much small than expected because people are going to go broke beforehand. That's the good news.

Boston Fed: Obama's efforts toward housing "misdirected"

It isn't hard to find news articles claiming that the bottom in housing is in.

Harney notes that “even the most bearish researchers” are saying that home prices are almost at bottom

The problem is when you look at the actual numbers they show something entirely different. For instance, just today, the PMI Mortgage Insurance Company predicts that housing prices will continue to fall for the next two years. These guys aren't exactly a group that likes to spread doom and gloom.

So who is right? Well, let's take a look at today's news.

Subprime meltdown over; now comes the bad news

So much has been made of the subprime mortgage meltdown that you would think it was almost totally responsible for the economic collapse, and that once the subprime problem was fixed then the worst would be over.

Unfortunately nothing could be further from the truth, despite hitting new highs in foreclosure listing. Instead it was the first round of a three part collapse, and we are on the edge of the second round.
I will demonstrate with a fantastic series of charts below, most of them were created by the T2 Partners.

Ding, Ding - Real Estate Round Two.

No good news, No happy days are here again, No bottom in the housing market.

Leg Two Down

After that little head fake of an uptick in sales for March the RE market is resuming its downward trend. Those that still listen to the screaming heads of CNBC and FAUX news bought into this garbage journalism and unfortunately are going to pay dearly.
The housing crash that began with the subprime collapse in the summer of 2007 is set to resume this summer ... only this time .... higher up the food chain.
Even while the media was touting a bottom in housing as evidence by the uptick in sales, foreclosures were setting new records in March and April.

April was the second straight month with more than 300,000 households receiving a foreclosure filing, as the number of borrowers with mortgage troubles failed to abate.

Another wave of foreclosures is approaching

Well Fargo announced today $3 Billion in profits. It was fantastic news and it sent the stock market soaring.

However, one thing that didn't get talked about was why they made so much money.

Wells Fargo CFO Howard Atkins discusses the banks $3 billion reported first quarter 2009 earnings. Atkins hypes the impact of mortgages to the bottom line, due to low interest rates and foreclosure selling no doubt, but shockingly admits at the 7:45 mark that with the writedowns that would have been required by Mark to Market the bank actually lost money on the quarter.

To put it another way, Wells Fargo made money because the government allowed them to play "let's pretend your assets are worth something".

The de facto nationalization of the housing bust

Congress may be still debating a bailout bill, but the bailout of the housing market is already in progress.

Freddie Mac and its fellow GSE Fannie Mae are now financing more than 80 percent of all mortgages in the U.S., up from 40 percent a year ago.

As lenders rely on Freddie Mac to buy their loans, the company is charging higher prices and increasing market share. Freddie Mac, which has a $738 billion portfolio of mortgage bonds and guarantees $1.78 trillion in home loans, is raising prices next month for the fourth time.

"We are nearly the only game in town, and we think we are going to be able to enjoy that position for a number of years," Piszel said.

Considering the implied promise of taxpayer backing for these government-sponsored entities combined with the collapsing real estate market, this should scare everyone.

Buy one home, get another one FREE!

If there was ever a sign that the housing market was nowhere near a bottom, this has got to be it. We aren't talking about Detroit or Cleveland here. This is San Diego. We aren't talking about some slumlord's shack. These are new homes.

Am I pointing this out because it is a great deal? Not even close. This is a clear sign that home prices will fall much further.
Allow me to explain.

No matter how bad you've heard the housing market is, the truth is much worse.