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12 Reasons Why The U.S. Housing Crash Is Far From Over

Over the past several months, many in the mainstream media have hailed the slight improvement in the U.S. real estate market as a “housing recovery”.  But the truth is that the small improvement in the numbers was primarily due to a significant number of Americans attempting to squeeze their home purchases in before the huge home buyer tax credit expired at the end of April.  Now that there is no more giant tax incentive, real estate professionals all over the United States are fearing the worst.  Mortgage defaults and foreclosures are still at record levels, and a giant “second wave” of adjustable rate mortgages is scheduled to reset in 2011 and 2012.  In addition, there are numerous indications that the U.S. economy as a whole is going to experience a dramatic downturn shortly, and if that happens it is going to be really bad news for the housing industry.  So are we about to see “Housing Crash Part 2”?

The reality is that it has taken unprecedented U.S. government intervention to even stabilize the U.S. housing market.  Now that the tax credit has expired, and as the U.S. economy continues to worsen, there is simply no way (except if we see hyperinflation at some point) that housing prices are going to return to the levels that we saw during the height of the housing bubble.

Banks and other lending institutions all across the U.S. have seriously tightened their lending standards and so it is now much more difficult to get approved for a mortgage.  That means that there are going to be less home buyers in the marketplace.

In addition, while mortgage rates are at record lows right now, the truth is that they will not stay there indefinitely.  When interest rates do start to rise that is going to suck even more home buyers out of the market.

Truthfully, the housing market is not going to be as good as it was during the first several months of 2010 for quite some time.  The entire U.S. economy is on the verge of collapse, and when it does the real estate industry is going to be one of the first to feel the pain.

The following are 12 reasons why the U.S. housing crash is far from over….

#1) Now that the huge home buyer tax credit (government bribe to purchase homes) has expired, the real estate industry is bracing for the worst.  The truth is that a significant percentage of those Americans that planned to buy a home in 2010 really tried to squeeze their purchases in before the April 30th deadline in order to take advantage of the tax incentive.  According to mortgage consultant Mark Hanson, “buyers were bidding on everything and sellers were accepting anything and everything before 4/30.”  Now that the tax credit is over, things could get really slow for the U.S. real estate market.

#2) A massive “second wave” of adjustable rate mortgages is scheduled to reset in 2011 and 2012.  In fact, there are many analysts that are openly speculating that this second wave could be even more brutal than the first wave that we experienced in 2007 and 2008.

#3) The number of home sale closings in May was down more than 5% compared to April.

#4) Newly signed home sale contracts dropped more than 10% in May.

#5) There has been an even more dramatic decline in mortgage applications.  In fact, home purchase applications are now almost 40 percent below the level of just four weeks ago.

#6) Internet searches on real estate websites are down 20 percent compared to this same time period in 2009.

#7) From all indications, a record number of foreclosures is going to continue to flood the market.  The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period.  That was a record high and up from 9.1 percent a year ago.

#8) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a whopping 35 percent increase from the first quarter of 2009.

#9) A staggering 24% of all homes with mortgages in the United States were underwater as of the end of 2009.

#10) People can’t buy houses if they are flat broke.  For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.

#11) The truth is that American consumers are stretched to the limit and are increasingly finding it very difficult to pay their bills.  During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

#12) The overall U.S. economy is in really bad shape and is rapidly getting worse.  If American workers cannot find good jobs and if they keep going bankrupt in record numbers they simply are not going to be able to buy homes in 2010 or any year thereafter.

Those who are projecting a robust housing recovery are living in some kind of fantasy world.  It is just not going to happen.  Let’s just hope that things don’t get as bad as the numbers seem to indicate that they might.  Another devastating housing crash would just suck the life right out of the U.S. economy.  So let us hope for the best but also let us be prepared for the worst.

The Beginning Of The End

Strategic Defaults: Is It Morally Right To Decide To Simply Stop Paying Your Mortgage?

In 2010, record numbers of Americans are defaulting on their mortgages.  For most of them, it is because they simply cannot afford the mortgage payments any longer.  But for a growing number of Americans, the decision to stop paying on a mortgage is not because of financial hardship.  Rather, after taking a hard look at the numbers, many Americans are simply deciding to walk away rather than continuing to make monthly payments on a home that has dramatically declined in value.  It is called a “strategic default”, and it is a phenomenon that is sweeping the nation.  So why have strategic defaults increased so dramatically?  Well, in some areas of the United States, homes are only worth about half of what they were going for at the height of the market.  So what is the morally right thing to do in that situation?  Should someone “honor the contract” that they signed and continue making payments no matter how hard it hurts, or is the morally right thing to stop making payments on the mortgage in order to put your family in a better financial position?

The truth is that the answers to these questions are not easy.     

In the past year it is estimated that at least a million Americans who can afford to stay in their homes simply walked away.

Take a moment and think about that.

A million Americans that have simply walked away from their homes.

This is something that is absolutely unprecedented in American history.

In fact, 31 percent of all foreclosures in March were deemed to be “strategic defaults” by researchers at the University of Chicago and Northwestern University.  That is up from just 22 percent in March 2009.

So the strategic default trend is accelerating.

And with more than 24% of all homes with mortgages in the United States underwater as of the end of 2009, it is likely that we are going to see a whole lot more strategic defaults.

This is particularly true in areas that were hurt the worst by the real estate crash.  In Arizona for example, it is estimated that 50 percent of all homes are underwater, and in Nevada it is estimated that a whopping 65 percent of all homes are underwater.

That is a whole lot of families that have some very hard decisions to make.

But it just isn’t families that are making these kinds of decisions.  Even the biggest financial institutions in the United States have committed strategic defaults.  For example, Morgan Stanley walked away from five San Francisco office buildings they bought at the height of the real estate boom.

But is it the right thing to do?

Well, let’s look at both sides of the issue.

Why many would say that strategic defaults are morally acceptable….

Many Americans have no problem at all walking away from their mortgages.  After all, they would argue, they never agreed to pay twice what a house is worth.

If they signed up for a $400,000 mortgage, they would argue that they expect to be making payments on a house that is worth somewhere around $400,000.

So is that unreasonable?

After all, if a $400,000 house goes down to $200,000, there are many that would argue that it represents an unforeseen circumstance that negates the deal.

Others would argue that bankers tricked millions of Americans into accepting mortgages that they could not possibly afford, and therefore nobody should be crying for the bankers when people quit paying on those mortgages.

In essence, the argument is that the bankers created this mess so the bankers should be the ones to pay the penalty.

Still other Americans are choosing strategic defaults because it enables them to provide for their families during these hard economic times.

For many Americans, often the choice is between paying the mortgage and putting food on the table.

And because of the massive delays in processing foreclosures these days, many people are finding that they can live in their homes “rent free” for months on end after they stop making payments.

In fact, Bank of America’s credit loss mitigation executive, Jack Schakett, has even acknowledged that many home owners have a huge financial incentive to walk away: “there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers.”

So how much “free rent” are those who have walked away from their mortgages getting?

According to LPS Applied Analytics, the average home owner in foreclosure has been delinquent for 438 days before actually being evicted.  That is up from 251 days in January 2008.

The truth is that especially in states where the foreclosure process must go through the courts, the systems are simply being overloaded.

For example, in Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases.  Ten years ago, there were only about 4,000.

But there are others that would argue that strategic defaults are 100 percent morally wrong.

Why many would say that strategic defaults are morally wrong….

Those who would say that strategic defaults are wrong would argue that no one put a gun to the head of anyone signing up for a mortgage.

They would argue that “a contract is a contract” and that Americans should fulfill their obligations, no matter how hard it hurts.

The truth is that once upon a time in America, a “strategic default” would have been unimaginable to most people.

Back then, a man was only as good as his word.

Even today, to purposely break a contact is on the same level as purposely telling a lie to many people.

Not only that, but the reality is that a strategic default will ruin your credit for years to come.  Many would argue that it is immoral to ruin your family credit for the simple convenience of getting out of a bad mortgage.

In addition, many would argue that it is wrong to take advantage of the banks by exploiting the delay in foreclosure processing – no matter how evil the banks have been.

After all, do two wrongs make a right?

Plus, in some states there may be additional financial penalties even after you walk away.

Kyle Lundstedt, the managing director of Lender Processing Service’s analytics group says that those who do willingly walk away from their homes are playing a very dangerous financial game….

“These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

Plus, those who do commit strategic defaults raise borrowing costs on the rest of us.  In the future, banks are going to have to charge all of us higher interest rates on our mortgages in order to factor in the risk that many Americans will simply walk away from their mortgages if their house values go down.

So is it right for everyone else to suffer in the future so that some can get out of bad mortgages right now?

The truth is that it is not the purpose of this article to answer these questions.

The purpose of this article is simply to raise these questions.

We live in unprecedented economic times, and we are all going to be faced with very hard decisions as we move into a very uncertain future.

Strategic defaults pose some very interesting moral dilemmas, and if you ask 10 different people about strategic defaults you are likely to get 10 different opinions.

So what do you think about strategic defaults?

Is it morally right to decide to simply stop paying your mortgage?

Feel free to leave a comment with your opinion….

11 Clear Signs That The U.S. Economy Is Headed Into The Toilet

The U.S. Economy Is Headed Into The ToiletThe vast majority of the talking heads on television are still speaking of the current economic collapse as if it is a temporary “recession” that will soon be over.  So far, the vast majority of the American people seem to believe this as well, although for many Americans there is a very deep gnawing in the pit of their stomachs that is telling them that there is something very, very wrong this time around.  The truth is that the foundations of the U.S. economy have been destroyed by an orgy of government, corporate and individual debt that has gone on for decades.  It was the greatest party in the history of the world, but now the party is over.  The following are 11 signs from just this past month that show that the U.S. economy is headed into the toilet and will not be recovering….

#1) When even Wal-Mart is closing stores you know things are bad.  Wal-Mart announced on Monday that it will close 10 money-losing Sam’s Club stores and will cut 1,500 jobs in order to reduce costs.  So if even Wal-Mart has to shut down stores, what chance do other retailers have?

#2) Americans are going broke at a staggering pace.  1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.

#3) American workers are working harder than ever and yet making less.  After adjusting for inflation, pay for production and non-supervisory workers (80 percent of the private workforce) is 9% lower than it was in 1973.  But those Americans who do still have jobs are the fortunate ones.

#4) Unemployment is absolutely exploding all over the United States.  Minority groups have been hit particularly hard.  For example, unemployment on many U.S. Indian reservations is over 80 percent.

#5) Unfortunately the employment situation is showing no signs of turning around.  December was actually the worst month for U.S. unemployment since the so-called “Great Recession” began.

#6) So just how bad are things when compared to past recessions?  During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs will stop any time soon.

#7) Can you imagine trying to get your first job in this economic climate?  Our young men and women either can’t get work or have given up on work altogether.  The percentage of Americans 16 to 24 who have jobs is 13 percent lower than ten years ago.

#8) So where did all the jobs go?  Over the past few decades we have allowed the corporate giants to ship mountains of American jobs overseas, and there are signs that this trend is only going to get worse.  In fact, Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades.  So get ready for even more of our jobs to be shipped off to Mexico, China and India.

#9) All of these job losses are leading to defaults on mortgages.  Over the past couple of years we have seen the American Dream in reverse.  According to a report that was just released, delinquent home loans at government-controlled mortgage finance giants Fannie Mae and Freddie Mac surged 20 percent from July through September.

#10) But that is nothing compared to what is coming.  A massive “second wave” of mortgage defaults is getting ready to hit the U.S. economy starting in 2010.  In fact, this “second wave” is so frightening that even 60 Minutes is reporting on it

#11) Meanwhile, the Federal Reserve has announced that it made a record profit of $46.1 billion in 2009.  Apparently during this economic crisis it is a very good time to be a bankster.

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