Well, it has to be done. If it has to be done, why not here on the best public/community forum in the world. I really am not happy about having to post this. I am very hopeful that a second bailout package will address this coming catastrophe.
However, I am not sure what can be done to prevent it other than a complete re-organization of the domestic economy, including but not limited to a substantial U.S. progressive tax to assist the countries growing and near unsustainable deficit and massive wealth redistribution immediately raising the middle class incomes by 20% (to what they would be without the wage stagnation experienced during the "aughts" or, as the Washington Post recently termed them, the "lost decade").
Here is the data, please prove me wrong.
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Edit, removal of reference to a Value Added Tax. Which, on its face would raise the necessary revenue to prevent debt default but is not a progressive tax and would only exacerbate the problem of household balance sheets.
Dateline: New York, Jan 14th 2010
RealtyTrac Releases it's Foreclosure Numbers for 2009
RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its Year-End 2009 Foreclosure Market Report™, which shows a total of 3,957,643 foreclosure filings — default notices, scheduled foreclosure auctions and bank repossessions — were reported on 2,824,674 U.S. properties in 2009, a 21 percent increase in total properties from 2008 and a 120 percent increase in total properties from 2007. The report also shows that 2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006.
Foreclosure filings were reported on 349,519 U.S. properties in December, a 14 percent jump from the previous month and a 15 percent increase from December 2008 — when a similar monthly jump in foreclosure activity occurred. Despite the increase in December, foreclosure activity in the fourth quarter decreased 7 percent from the third quarter, although it was still up 18 percent from the fourth quarter of 2008.
"As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans," said James J. Saccacio, chief executive officer of RealtyTrac. "After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline.
The trend in Prime Mortgage foreclosures is increasing at a greater rate. At the same time, the entire infrastructure that processes foreclosures is swamped and this is affecting the collection of data for the industry.
Here is a graph updated and missing the last quarter of data for 2009
This only represents prime mortgages headed for and already in foreclosure. It does not include risky Alt-A mortgages which basically are mortgages whose risk factor is measured between Sub-prime and Prime mortgages.
This graph only shows data through March 2009 but shows the additional foreclosures attributed by Alt-A Mortgage defaults.
Now, foreclosures rates rising and increasing in their rate of rise is a bad sign but would not lead to the decline that I have estimated in the title of this diary. What would cause this decline is if these foreclosures are not being sold. If the banks are holding onto them to help keep their balance sheets at an inflated value, knowing that the actual value of these assets are already 25% lower than their book value.
it turns out that is exactly what is happening. It is called a "Ghost Inventory" and it was bad back in January of 2009.
The problem: Many foreclosed homes and other distressed properties that are now owned by banks have yet to be listed for sale. The volume of this so-called 'ghost inventory' could be substantial enough to depress already steeply falling prices when it does go on the market.
"That's not good news," said Pat Newport, an analyst with IHS Global Insight. "[Excess] inventory is the biggest problem in housing these days, and it leads to lower housing prices, which leads to more foreclosures."
RealtyTrac, the online marketer of foreclosed properties, recently discovered that it has far more foreclosed properties listed in its database, which the company compiles using courthouse records, than there are listed in the multiple listing services (MLS) maintained by real estate agents.
RealtyTrac looked at listings in four states, California, Maryland, Florida and Wisconsin, and found that they contained only a third of the foreclosures it has in its database.
This means that nearly 70% of foreclosures were being held off the books. That was then. Now the numbers look much worse.
Going back to the Realty Trac Year-End Report:
A total of 632,573 California properties received a foreclosure filing in 2009, the nation’s largest state foreclosure activity total and an increase of nearly 21 percent from 2008. After four straight month-over-month declines, California foreclosure activity in December increased nearly 9 percent from the previous month, but the state’s fourth quarter foreclosure activity was still down 17 percent from the previous quarter.
So, 632,573 foreclosure filings in California in 2009.
a check of a popular weblocator of homes for sale in the state (http://www.zillow.com) shows that the current california home real estate market has less than 200K homes currently listed. Of this total, only about 100K homes in the state are listed due to foreclosure. This would indicate a significant increase in the percentage of homes currently in the Ghost Inventory. It is very likely that 90% of recently foreclosed homes are not being listed. In addition, the rate of foreclosures is going to increase through 2010 with an expected additional 2.5 million homes foreclosed on next year.
http://www.zillow.com/...
Robert Shiller's Horrible Graph
Robert Shiller is a Harvard Economist and helps publish the case-shiller index
This index is the most widely cited reference for u.s. housing values, adjusted for inflation, over time.
in 2008, at the peak of the housing bubble, the NY Times picked up this story.
this graph shows the shiller data through the last 116 years or so.
note that the decline in historic housing prices are based on the incomes of the general population. That is why the values dropped so low from the 1920s until after the great depression. Home values are negatively affected by wealth inequality This graph is taken from the New York Times article, but thankfully, Mr Shiller has an updated file on his website. It is important to note here that we are currently experiencing a wealth inequality in the U.S. that is nearly identical to that found in the early 1920's.
Here is the same graph with the most recent quarterly data.
Based on this graph, the simple return to historic valuations would mean a 30% decline in current home values. A decline that will only occur once the Ghost Inventory is placed on the market. Note: home values will not simply stop at the historic values but will undershoot some, that is where the 30% comes from. This is the best case scenario.
It will most likely not stop there though. Currently 40% of the U.S. unemployed have been unemployed 27 weeks or more. There is no expectation of job growth in 2010 and without job growth we will not see wage growth for another 5 years or so.
In addition, the most devistating aspect of this economic downturn has begun. The decline in consumer spending indicates a negative economic feedback loop well through 2010. This is without any further compounding effects by way of the housing market collapsing again in 2010 as mentioned above.
This is why there is going to be a second bailout package. The only question is:
How can the government bailout consumer spending declines based on a complete collapse of household balance sheets amidst growing unemployment and further housing market declines?