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New Supply Floods U.S. Housing Market

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To the surprise of no one (who was paying attention), the U.S. housing market is once again flooded with excess supply – and worse still, the situation is guaranteed to get much, much worse in the months (and years) ahead.

The situation is very simple: there are no buyers and more “homeowners” than at any time in history are incapable of servicing their mortgages (in other words, they aren’t really  home-owners). This means that inventories will go straight up, and prices should go straight down. Of course, as I pointed out in a previous commentary, massive U.S. mortgage-fraud (which is greater today than at the heart of the first U.S. housing-bubble) means that even price-data from the U.S. housing market is hopelessly flawed.

To be specific, fraudulent transactions reporting supposed “price gains” of 1000% and more have totally poisoned this data. As a result, no one is capable of saying exactly how fast U.S. house prices are really falling. Using fraud to lie to Americans is nothing new for the U.S. government – and undoubtedly it considers itself very clever to use mortgage-fraud to feign price-gains in the U.S. housing market.

However, all that is being accomplished is that instead of an horrific crash – which finally results in an equilibrium price-level, the U.S. government continues to delay the real, necessary correction in prices. Instead of this crash being spread over merely five to ten years, the U.S. government is ensuring a full generation of slow, steady decay.

As I remind readers regularly, the U.S. “pension crisis” and $70 trillion in “unfunded liabilities” mean that the pensions and social programs which are supposed to support retiring baby-boomers are grossly and hopelessly under-funded. Recipients (with rare exceptions) will only be receiving pennies on the dollar with respect to these benefits.

Holding no assets other than real estate, retiring baby-boomers have a choice between radically reducing their spending (and standards of living) – which will destroy the U.S. consumer-economy – or, they can dump trillions of dollars of real estate onto the market (i.e. at least 10 million more homes).

Meanwhile, even at propaganda-outlets like Bloomberg, they are predicting anywhere from 8 to 12 million more foreclosures/repossessions which are going to be dumped onto the U.S. market over the next few years. By itself, this is several years of supply. In other words, if U.S. homebuilders didn’t build even one house, and U.S. homeowners didn’t sell one home, it would still take more than two years  just to clear away all this additional, bank-owned supply.

In the real world, however, U.S. home-builders continue to flood this over-supplied market with new units. U.S. homeowners continue to sell their homes – with large numbers of them being so desperate that they are forced into “short-sales”. And U.S. baby-boomers are just about to start dumping millions of homes, themselves.

There are several things which make this next collapse of the U.S. housing market so much worse than the first. To begin with, price-disparity between different regions/markets in the U.S. has disappeared. Unlike the first U.S. housing-crash – which only really impacted about 1/3 of U.S. homeowners, this next crash will hurt everyone.

Secondly, the government has already done everything it could (after the first crash). Interet rates are literally as low as they can possibly go. The home-buyers subsidy has already lured any Americans who still have any purchasing-power into this market – meaning that there is no reservoir of buying-capital to pull this market out of the next collapse.

The average wages of Americans have been falling (in real dollars) since 1970, making 1970 house-prices a reasonable point-in-time to look at as a possible, long-term equilibrium point for prices. That implies that U.S. house-prices will fall another 75% from current prices. Indeed, with the average American now earning (in real dollars) what their great-grandparents earned during the Great Depression, 1970-prices suddenly look much less far-fetched.


http://nowandfutures.com/

Having fattened-up on 0% “loans” from the government, and their “trading profits” from rigged, U.S. equity-markets, apparently the banksters are finally able to absorb some of the massive write-downs which they must take (on each and every foreclosure/repossession). “Home seizures” by U.S. banks hit a record in August – for the third time in five months. However, with 8 to 12 million homes (at least) to dump onto the market, we should expect these home seizure rates to at least double over the next year.

Even at double the rate of seizures, it would still take more than 4 years just to get all of this excess supply onto the market. And by that time, the house-dumping by cash-strapped, retiring baby-boomers should be just starting to accelerate.

With permanently depressed wages, massive unemployment, the most over-supplied market in history, no personal savings, and an economy in the early stages of a Greater Depression, there is no “light at the end of the tunnel” here – not in five years; not in ten years.

If this nightmare already sounds as bad as it could possibly get, you’re wrong. I (and other commentators) have said for years that reckless U.S. money-printing by the Federal Reserve, and even more reckless fiscal policy from the U.S. government has made U.S. hyperinflation inevitable.

With the entire U.S. economy drowning in $60 trillion in total public/private debt (plus an additional $70 trillion in “unfunded liabilities”), there is no way to even service this mountain of debt with the U.S.’s (relatively) tiny $13-trillion economy. The U.S. government must drive the U.S. dollar down to near-zero – so that all these U.S. dollar-denominated debts “evaporate” with inflation. However, what also evaporates is the wealth of all Americans (or at least all wealth which has not previously been converted into gold and silver).

For Americans desperate to escape out from under crippling, “under-water” mortgages, there is no hope at all for such people when the only potential buyers for their property have currency which will be (literally) worth no more than “Monopoly” money. This is what makes the current disinformation from the U.S. government so despicable. By convincing Americans to delay bailing-out of this dying market, all that the U.S. government is doing is making the financial destruction of these households 100% wipe-outs.

Americans need to escape from their under-water mortgages now – at any/all costs – and convert their wealth to precious metals (the only, real "money"), so that when U.S. hyperinflation hits, their own wealth is 100% “insured”. For those in these financial death-traps, you only have a matter of months (and possibly even weeks) in which to avoid financial catastrophe.

Eminent U.S. economist (and founder of Shadowstats.com) John Williams, has already accelerated his own forecast for a U.S. “hyperinflationary depression” to as soon as this year. Avoid the hypnotic effect of the U.S. propaganda-machine – and act now, before it is too late.

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Comments (21)Add Comment
Jeff Nielson
...
written by Jeff Nielson, September 20, 2010
Breezer, I'm starting to get pretty cocky (a bad sign?) myself these days, with my "who's afraid of the big, bad Wolf?" refrain on our bulletin boards today.

breezer1
...
written by breezer1, September 20, 2010
as bill buckler said in his last newsletter," the jig is up ". or something like that. the war against gold and silver cannot be lost before the mid-terms. i believe it is being lost now in slow motion. the MERS controversy has only just now hit the fan. this is going to wake up the public and there will be no one going back to sleep.
things just got a whole lot worse for the spin doctors.
Jeff Nielson
...
written by Jeff Nielson, September 20, 2010
The Other,

What we're seeing here is the proverbial "confluence of events": "hard" evidence of the scale of the banksters' scamming is emerging just as people (especially the American public) are FINALLY becoming more receptive to learning about these misdeeds. So the ability of such stories to gain "traction" has increased enormously.

As for the "end" of the U.S. recession? Lol!! I would think seriously about writing yet another "There is no U.S. recovery" commentary, except there too I think we've reached the point where significant numbers of people see right through such propaganda.

If not, about another 3 months of the RENEWED collapse in the U.S. economy should do it!
ecliving
...
written by Jeff, September 20, 2010
Hey, we can all breathe a sigh of relief. This just in...

The US recession ended in June 2009 smilies/shocked.gif

What the...?

A quote from a CBC (Canadian Broadcasting Corp.) news release on their site...

"The National Bureau of Economic Research, a panel of academic economists based in Cambridge, Mass., said the recession lasted 18 months. The NBER said it started in December 2007 and ended in June 2009.

Read more: http://www.cbc.ca/money/story/...-over.html
ecliving
...
written by Jeff, September 20, 2010
I sent Breezer's article to an acquaintance who's in the mortgage industry. Her response? "Wowwwww. Just read the article. While no surprise, it is still hair raising."

I think that this the article is something that all of us should start plastering around the internet so that people can't help but find it somewhere.

I manage a site about debt relief for a friend. I'm sending the link to her.


Jeff
Jeff Nielson
...
written by Jeff Nielson, September 20, 2010
Breezer, that's a great link. Here's something related (off of our bulletin boards) which you may not have seen...

http://www.bullionbullscanada.com/index.php?option=com_kunena&Itemid=122&func=view&catid=6&id=1447#1475

And for those newer readers, this ALL relates to the scam the bankers began when they created "MERS", more than a decade ago...

"Who OWNS Foreclosed U.S. Properties?, Part I: Scam in the making"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=4539:who-owns-foreclosed-us-properties-part-i-scam-in-the-making&catid=47:us-commentary&Itemid=132

"Who OWNS Foreclosed U.S. Properties?, Part II: the role of MERS"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=4600:who-owns-foreclosed-us-properties-part-ii-the-role-of-mers&catid=47:us-commentary&Itemid=132
Jeff Nielson
...
written by Jeff Nielson, September 20, 2010
Null/Jeff-the-other, interesting speculation.

I think the fact that U.S. banks have basically FORCED the U.S. government to "guarantee" all U.S. mortgage-debt tells us a lot here. Clearly, the bankers are terrified by the idea of mass-defaults, AND the fact that you can't foreclose "everyone" has many implications.

Null, your strategy is certainly potentially valid. It would probably be best as part of some combination-strategy. Specifically, a gold-holder could take on one or more mortgages during a time of high/very-high inflation.

Strategy #1 is just to not make any payments - and see IF the particular bank in question has sufficient resources to foreclose on the particular mortgage(s) in question. The gold could be held-back - and only used (at the last minute) to prevent foreclosure. The longer this stalling-tactic was successfully used, the LESS gold that would be required to discharge the mortgage (or at least get the loan "current" again).

Obviously, if large numbers of Americans "cooperated" in such a strategy ("conspiracy" is such a dirty word!), the effect on the banks would be devastating.

As I said elsewhere, if Americans currently "masquerading" as "Tea Party" activists wanted to do something USEFUL, it would be to start-up a new slogan amongst the American population:

"Walk-away, or just don't pay...!"

Jeff-the-other, as long as the Fed keeps interest rates at zero, the banks can't jack-up interest rates on mortgages. AND as soon as the U.S. increases rates substantially, various state and local governments would quickly start going bankrupt - with the federal government not far behind.

The liars/criminals have trapped themselves in a corner - and there is no escape...
breezer1
...
written by breezer1, September 20, 2010
buyer beware...
http://www.nakedcapitalism.com/2010/09/latest-real-estate-time-bomb-title-of-foreclosed-properties-clouded-wells-fargo-dumping-risk-on-hapless-buyers.html?source=patrick.net
ecliving
...
written by Jeff, September 20, 2010
I'd love to see if that strategy has any legs. However, I can't imagine banks letting mortgages continue on at current interest rates when all around them inflation is 10% a day or more. Wouldn't they just call in the mortgage and make you sign papers saying you'll pay the current rate of inflation plus x%, or take the house from you if you didn't sign?
Null
...
written by Null, September 20, 2010
realist, I've also heard an interesting strategy of buying a house with a big mortgage right now, providing you have lots of gold also, and then when hyperinflation hits you just pay off your then-miniscule mortgage with an ounce of gold and voila, you now have a house. I imagine you'd have to really know what you are doing to make this work though, and have a lot of confidence in how hyperinflation will progress.
realist
...
written by realist, September 19, 2010
Hi, Jeff

I see two risks for the U. S. housing market: declining house values and rising interest rates. House values will decline for the reasons you stated above and because of high unemployment. The second risk is for rising interest rates. When current interest rates are this low, there is only one way they can go and that is up. This will decrease the amount of principal that a buyer can borrow and hence it will put a downward pressure on house prices.

Buying a home in today's environment is risky.
breezer1
...
written by breezer1, September 18, 2010
canary in the gold mine...
more lies from zero hedge. how do you spell pannick?
http://www.zerohedge.com/article/tale-two-distributions-or-are-these-economic-numbers-bls-now-openly-makes
Null
...
written by Null, September 18, 2010
How do you think this collapse of commerce in the US will affect other western countries, especially Canada? Should we make a plan to get out of here too? If this happens as you have outlined (it seems inevitable) I imagine we will see a lot of refugees flooding our border, but we won't be doing too much better up here.
Dylan
...
written by Dylan Jones, September 17, 2010
Asset deflation is not the same as currency deflation which may or may not ensue from a burst asset bubble. When a bubble bursts, the money never disappears, the elite insiders transfer the money somewhere else. When the Mississipi bubble burst, gold and real estate went through the roof, doesn`t sound like deflation to me!

In the case of the housing bust, the money went first into commodities, causing food riots and then into Bonds (Bondage?)and settlement of credit default swaps which went into secret accounts or back into Bonds. So we saw inflation followed by a sterilising deflation. Even this was not enough to halt real inflation, just to slow it down before the inevitable.

Of course, the outsiders are left to carry the can, with underwater mortgages,credit contraction, austerity measures and rising real inflation.

Money creation has dwarfed credit contraction, its just that the money hasn`t been put into play yet, just stuffed under the mattress. But its not there for insulation, it must be used at some point, in fact it is being used to scarf up things of real worth like physical gold and silver, land, commodities. This has been masked by the paper metal ponzi fraud and market rigging.
So, although further insane money creation will occur, the hyperinflationary damage has already been done, its just waiting to reveal itself.
It will be a sad irony indeed if the land of the free turns into a giant plantation, but the game is not over yet.
samix
...
written by sameer, September 17, 2010
agilespoon,

I protest, we in the so called "3rd world" on the same planet as your's do not use barter.

Jeff Nielson
...
written by Jeff Nielson, September 16, 2010
It is unfortunately TOO plausible that (a few decades from now) that the U.S. will become a "cheap wage" destination.

Here is what is fueling such an ugly future:

Nearly a 25% high-school drop-out rate (close to 50% for blacks and Latinos, who will soon become the majority).

A deliberate shift from a manufacturing-oriented economy to an agriculture-oriented economy.

I don't know if this is an attempt to dominate the global food supply, or whether it's simply the best way to "purge" most of the high-paying manufacturing jobs, but it's certainly taking the U.S. TOWARD "Third World" status - although we have to recognize the U.S. is STILL a dominant player in many parts of the tech-sector.

Any way you analyze this situation, it looks like the future for the U.S. is a truly two-tiered society - with a small group of ultra-rich Oligarchs, a small, well-educated upper-middle class, and a HUGE population of serfs.
agsilverspoon
...
written by David, September 16, 2010
If the united states is forced into using a barter system and becomes 3rd world, do you think it plausible that other countries would eventually use America for cheap labor to produce their goods like the US has been using them, and this would slowly rebuild the economy? This is of course assuming that the government United States does not go to war (which I imagine it probably will) when the economy collapses.
Jeff Nielson
...
written by Jeff Nielson, September 16, 2010
On the one hand, what you're describing is actually "deflationary": flooding the market with real estate will cause property-prices to plummet - with various other (deflationary) knock-on effects.

On the other hand, I firmly believe that it willbe some sort of "deflationary crisis" or fears of an imminent debt-default which will LEAD to U.S. hyperinflation. In other words, in REACTION to some deflationary shock, the Fed will engage in "the straw that breaks the camel's back" - a new round of money-printing which causes FOREIGN holders of U.S. dollars to dump all U.S. dollar-denominated assets. It is ultimately NON-Americans who will decide when U.S. hyperinflation begins.

The reason why John Williams pioneered the phrase "hyperinflationary depression" is because when this hyperinflation hits, Americans will (unfortunately) experience the "worst of both worlds".

Prices for food, clothing, and basic necessities would skyrocket, while (in real dollar terms) ALL banker-paper and over-valued U.S. assets (i.e. real estate) would plummet in value.

I just re-read John Williams most-recent "Hyperinflationary Report" after it was posted again, and it reminded me of one of the most-dire observations he had made: unlike Zimbabwe (which used/uses U.S. dollars), the U.S. would not/could not create the same "black-market" economy - since there IS no other "currencies" to use as back-up (other than gold and silver).

Of course, because of the anti-gold propaganda campaign, only a tiny portion of the U.S. population is protecting themselves with this insurance - meaning that WHEN this crisis hits, most Americans will have NOTHING which can be used as "money". It will be almost a total "barter system", and the complete break-down of all commerce.
agsilverspoon
...
written by David, September 16, 2010
What do you think the catalyst for the the hyper-inflationary depression would be if it actually happened this year? Banks putting all the houses they've foreclosed on into the market?
Jeff Nielson
...
written by Jeff Nielson, September 16, 2010
Hi Jeff-the-other (and thanks again for distinguishing yourself).

The banksters can't prevent the "war" in the gold and silver markets from being lost (it's already lost), but they CAN control how soon or how distant "final defeat" will be (within certain limits).

While I think that the recent moves in BOTH the gold and silver markets suggest that the EXPECTED fall-breakout is here, I don't think we can read any more into the moves so far. Silver was ridiculously under-valued versus gold, and gold's move has been relatively small (to date).

We can see SEVERAL more legs of strong up-trends for gold and silver - but representing nothing more than "strategic retreat(s)" by the banksters.

Silver is certainly more of a "wild card" in terms of it being a real mystery as to how little is left. Personally, I would be surprised if we're VERY close to some market-default event - as that would represent a colossal strategic failure on the part of the banksters.

There is certainly the possibility that we could be close to some sort of economic catastrophe, which would THEN cause a default in the gold or silver market. However, what I do NOT think we will see is for the gold (or silver) market to "telegraph" those sorts of events. Frankly, I don't think the banksters have a good enough understanding of economic parameters and fundamentals to KNOW when catastrophe is about to occur.
ecliving
...
written by Jeff, September 16, 2010
Any time my wife or I talk to someone in North America who says they're going to put the house on the market, we tell them to put it on sooner rather than later. They all ignore us.

Time will tell (soon) whether their faith, or complacency, or foolishness, or whatever it is, will leave them homeless AND destitute, or just destitute.

We're secretly hoping that a few people sell their homes in NA so that they'll have money to buy one of our two houses in Northern Ecuador (or both of them), so that we'll have the cash to buy some productive land in the south of EC.

It looks like gold and silver are finally breaking out of their 90 day averages, so we could be watching the beginining of the end in the developed world.

Jeff

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