Thursday, April 13, 2006

Housing Heaven Turns Into Housing Hell

From PrudentBear.com:

Welcome to Housing Hell
by Richard Benson

For the past decade, homeowners in the United States have been living in “Housing Heaven”. In this heavenly place, profits are always made; prices only go up; interest rates only go down; developers keep building, marketing, and selling megabuck, luxurious spa-like residences, that are all sold pre-construction; property speculators always make money, and pyramid their purchases into owning many properties to flip for a quick profit; and, second-homes are not an expensive luxury, but a wise investment for retirement.

If you really needed to make ends meet while living in this so-called Housing Heaven, all you had to do was buy a vacation home, rental property, or second-home and proceed to “install your own ATM on the side of your financed house” with your bank’s help, of course. Who needs to work, when you can simply go to the bank and rob your own house? It’s easier than robbing the bank! Living this way is fine in Housing Heaven, but not down here on earth. Here’s why.

Consumer debt is up to $2 trillion (not including $440 billion of revolving home equity loans and $600 billion of second mortgages). Not only do consumers owe a whopping $9 trillion in mortgage debt, but home equity extraction has reached $600 billion annually. Homeowners have basically received, and spent, in excess of $2 trillion that they never earned. (Just take a look at the increase in total mortgage debt in the Federal Reserve’s Flow of Funds Data since 2000).
...

So, welcome to Housing Hell. Now that buyers are willing to wait one or more years before buying, there are more sellers than buyers. Interest rates, in the meantime, continue going up. Let’s also not forget the Existential Equity Extraction. With $700 billion of sub-prime mortgages written (of which 10 percent could default), $2 Trillion of ARMs set to reset, and mortgage delinquencies near 5 percent, equity to extract is vanishing.
...
Our estimate is it will take about six months for sellers – particularly speculators who never intended to live in their properties but whose sole intention was to “flip” them for a profit – to realize they are toast.

Over the past 30 years, the United States has seen a Housing Hell scenario a number of times. In 1980-82, property values declined significantly each year. In ‘90, prices fell painfully again for five straight years in a row. There was a slight recovery in ’95, but prices fell again in ’96. When you look back, you will realize that the housing markets that suffered the most (particularly the Northeast and California), took almost 10 years to recover from the downturn. You may also remember when homeowners lost money every month and were forced to rent out their properties at a loss because they couldn’t sell them. Perhaps you know one of these homeowners.

Based on the logic of history, those who rent for a few years, rather than buy, will be rewarded the most (even though rents should increase with general inflation). Yes, the day will come again when it will, indeed, cost less to buy than it does to rent. When that day comes, it will signify the return, once again, of Housing Heaven.


Caveat Emptor!
Grim

31 Comments:

Anonymous Anonymous said...

HOUSING BUST!

TREND IS DONWZO!

BOOOOYAAAAH..

BOB

4/13/2006 02:52:00 PM  
Anonymous UnRealtor said...

You may also remember when homeowners lost money every month and were forced to rent out their properties at a loss because they couldn’t sell them. Perhaps you know one of these homeowners.


There's a house nearby that was bought for $740K last November, and is now on the market for a laughable $850K.

The clown wants over $100K in 'appreciation' in 5 months.

Absolutely nothing has been done to the house (no granite counters, etc).

Now, he just put it up for rent at a $2K monthly loss (not counting property taxes, maintenance, etc).

Can you say FB?

4/13/2006 02:59:00 PM  
Anonymous UnRealtor said...

Bob, Boycott Open Houses This Weekend!

* Empty ®ealtor sign-in sheets!

* No foot traffic!

* No ®ealtor idle chit-chat with prospects!


Just complete ®ealtor boredom and misery sitting in an empty house from 1-4PM.

4/13/2006 03:03:00 PM  
Blogger delford said...

Bob: This is Easter weekend, so almost nothing in the way of open houses, but of coures the realtors will blame the slow down on Easter being late this year.

4/13/2006 03:06:00 PM  
Anonymous Anonymous said...

$2k month rent.

Ouch! Can you say NEGATIVE cashflow?
Will Robinson it does not compute.

Booooooyaaaaaaah!

Bob

4/13/2006 04:13:00 PM  
Anonymous gary said...

F*ck 'em all. I hope they all starve, the greedy bastards. And once again, I am home owner.

4/13/2006 06:40:00 PM  
Anonymous gary said...

That is, I am "a" home owner.

4/13/2006 06:41:00 PM  
Anonymous RW said...

Gary
"I am homeowner" sounded a little cave man/macho tarzan.....I thought it was on purpose.....

4/13/2006 06:49:00 PM  
Anonymous Anonymous said...

I just met a FB today and he is a good friend of mine. What is shocking is that the speculation was all so rampant. My firend bought two houses to flip and now is negative cash flow as houses won't sell. I told him to sell, he refused to "take a loss".

Pity him.

Simmsays...
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com

4/13/2006 08:40:00 PM  
Anonymous UnRealtor said...

Ouch! Can you say NEGATIVE cashflow?
Will Robinson it does not compute.

Booooooyaaaaaaah!



You make me laugh Bob!

4/14/2006 10:33:00 AM  
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