California Doing a Rendition of the Housing Industry on the Budget – $20 Billion Budget Deficit and Massive Amount of Distress Inventory. How Banks Raided the U.S. Treasury with the aid of the Federal Reserve and have Damaged Housing Further.
The banking system has captured our government and frustration is boiling over. Yet those in the housing and banking industry seem complacent and even self congratulatory that we “have avoided Great Depression 2.0.” Really? Now we’re taking advice from the same group of cronies that led the economy off the financial cliff. And the most troubling thing is we are at the height of unemployment even though the headline rate seems to have steadied out. California’s unemployment rate still continues to move upward hitting 12.5 percent. Yet all is well in delusional banking world since their idea of a solution is simply not foreclosing. What is even worse, these banking crooks are now offering fire sale deals to other banks and hedge fund investors! I’ve contacted a few banks about short sales and in many cases, preference is being given to “all cash” investors. Glad those bailouts are supporting the crony banking system.
One of the most troubling trends is the belief that all is well because banks aren’t foreclosing on homes or the fact that there is no second wave. Really? Let us look at nationwide foreclosure filings shall we?
Who needs a second wave when the first wave is still in place? Some in the housing industry seem to be patting their back that there won’t be a second wave of foreclosures (even though it is still high) and base this on the mounting distress inventory with Alt-A and option ARMs but no actual foreclosure filing. The wave is hitting as people stop paying their mortgage. Take for example option ARMs. Nearly 50 percent of all outstanding option ARMs are at least 30 days late. In other words, the borrower isn’t paying the mortgage! Yet in some form of twisted abracadabra housing logic, this is avoiding the wave because banks are ignoring the problem. The wave was the distress. Foreclosures are still on the market. The bank balance sheet is still loaded with mortgage junk. But just because banks are putting their hands over their eyes doesn’t mean the issue was avoided. In fact, it is corrupt to the core and the way they acknowledge this is absolutely stunning. The fact that we have no solid financial reform after 2 years of major crisis is incredible. Banks simply ignoring missed payments while taking trillions demonstrates what has become of our financial system and their idea of dealing with the problem.
Take for example HAMP:
“(Huffington Post) As of the end of January there were over 116,000 permanent modifications and over 67,000 permanent modifications pending final approval,” Geithner wrote in his letter, which the panel received last week. “This group of approximately 180,000 permanent and pending permanent modifications represents about a third of the population of total modifications who have completed the trial modification and are at a point in the process where they are able to convert to permanent.”
HAMP has been an absolute failure. Yet HAMP is symptomatic of the bigger issue. Banks were able to raid the entire U.S. Treasury and Federal Reserve for $13 trillion in backstops and bailouts, with no questions asked but then start talking about moral hazard when it comes to HAMP:
“Kucinich was pessimistic about the ability of any program that doesn’t involve principal reductions to help floundering homeowners. “Instead, we’re going to stay on this slow path to default, foreclosure and personal bankruptcy,” Kucinich said. “And our economy is going to continue to suffer.”
He added: “It’s funny that moral hazard is a concept when it comes to Main Street but not to Wall Street,” a reference to the massive bank bailouts.
More than 2.8 million homes were lost to foreclosure last year, according to data provider RealtyTrac. The firm expects a record three million foreclosures this year.”
I’ve talked with colleagues who are Republicans and Democrats and both are absolutely appalled by what is going on with Wall Street and the housing industry. They have transformed our economy into one giant casino and houses are now life sized Monopoly tokens that are traded on the New York Stock Exchange with no regard to local economies. Moral hazard applies to the masses yet those rules don’t apply to the plutocracy that sits on Wall Street. While the stock market soars from the March low by a stunning 68%, job creation is nowhere to be found:
Where are the jobs? Last month they blamed the snow and now next month, we can expect a big boost because of Census hiring. That is great that we have thousands working at $16 or $17 an hour with no benefits but then what? Are we going to do the Census every month? Most Americans realize that things aren’t as rosy as Wall Street is leading on. And California is certainly not doing any better:
California Doing a Housing Industry on the Budget
“SACRAMENTO, Calif.—Gov. Arnold Schwarzenegger said Tuesday that he vetoed the largest piece of legislation in a package of budget bills because it did not take immediate steps to cut spending.
Democratic lawmakers said the bill would have shaved $2.1 billion from the $20 billion shortfall projected for California’s budget through June 2011. So far, the Legislature and governor have agreed to just $200 million in spending cuts.
“It’s extremely important that we immediately jump into action and make midyear cuts,” Schwarzenegger told reporters on Tuesday. “We’re spending, right now, $600 million a month more than we’re taking in. It’s irresponsible.”
This came out on Tuesday by the way. We still have a $20 billion shortfall and are spending $600 million a month more than what is being brought in. So what does that mean? It means more cuts or higher taxes. How is this good for housing? More importantly, how is this good for the state economy? If we look at the unadjusted unemployment rate California is up to 13.2 percent unemployment (headline). We are seeing 23 percent underemployment. This is something none of us have seen in the modern era. Yet those in the banking and housing industry are claiming mission accomplished just because banks aren’t moving on foreclosures. This is their ultimate solution. Because that is all they have. This suspension of belief is their idea of avoiding the second wave. Humor them and take this out to the logical conclusion.
Many Californians are underemployed as we have highlighted. Those that are employed, can expect tighter wages and higher taxes thus cutting into their disposable income. So how does this create higher home prices? Even if banks “trickle” out inventory once that inventory hits the market it confronts the economic realities people have to live by. That is why when we show examples of short sales they are selling at deep cuts. Home prices have to reflect local area incomes and what people can afford. Unless we plan on bringing back toxic waste mortgage sludge like Alt-A and option ARMs, people can only buy what their income can support.
If things are so fantastic in the housing market for California, I’m sure builders are out there in mass right?
Not exactly. Because there is a glut of housing on the market. And more importantly, that second wave of housing is sitting on the banks balance sheet. So they won’t be making construction loans when they realize just how much inventory is really out there. Just look at the above chart. Building permits and construction jobs are at the trough. No visible turn around. And take a look at notice of defaults and foreclosures:
The only reason the foreclosure number has fallen was because of HAMP (which as we now know is a failure meaning more short sales or foreclosures will hit the market soon because many on trial mods will not make it to permanent modification status). Whether it is a flood or just a steady trickle, this will happen. And these homes sell for lower prices thus pushing area prices lower. This is the next round for mid to upper tier markets. They have bought some time but it is running out. Eventually there will have to be some realization of local economic factors.
I was curious to see what industries were adding jobs:
Who will be buying the homes in 2010? More importantly, why would people be overpaying for homes? The above chart shows no real improvement in the real economy. In fact, all the banking industry is doing is stalling the inevitable but at the same time sucking the taxpayer dry. With the $13 trillion in bailouts and backstops we could have had enough to pay off every single residential mortgage in the United States and taken everyone to Disneyland. Instead, we are financing the crony banking system full throttle robbery of the American people.
Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.
.gif)
a