Wednesday, September 16, 2009

Concerned About the Cost of Government Health Care Reform?

If so, there's much more that should worry anybody who's a homeowner, Realtor, prospective buyer, or prospective seller--wait a sec, let's just include everybody here and say "American Citizen."  What is of grave concern is the amount of money the Federal Government is spending, without the consent of Congress and certainly not the American citizenry, to prop up the housing market. 

For example:

  • The US Government owns or guarantees 90% of all new mortgages written in the past year.  
  • The US Government now guarantees half of all mortgages of Fannie and Freddie.
Why so much intervention?  Because the housing bubble created fake valuations.  And the US Consumer is tapped out.  Here are a few details on 
  • declining values
  • foreclosures
  • underwater mortgages
  • evaporating home equity
from Charles Hugh Smith's above-linked post:

$5 trillion was extracted from home equity during the bubble. That propped up the "consumer spending" on which the world depends. That's gone.

Consumer debt is $14.5 trillion, or 134% of disposable personal income. Much of which, it should be noted, is devoted to debt service. Translation: consumer is tapped out.

9.6% of mortgages in the U.S. are in default. 50 million mortgages = 5 million in default.

Home equity has fallen from $13 trillion in 2006 to $8 trillion today. Home equity is now less than mortgage debt, and highly vulnerable to further reductions in valuation. Mortgages + equity= $18 trillion. A further 20% decline in home prices would be $-3.6 trillion, dropping home equity of the entire nation to less than $5 trillion.

About 25 million homes are owned free and clear.
That remains the one bit of light in this darkening picture. Not everyone mortgaged their home to the hilt and squandered the proceeds.

40% of the home sales in 2005-6 were openly speculative.
Add in fraud, lies and half-truths (Uh sure, I'm gonna live here as my primary residence, heh), and you get 50% of all sales in the bubble years were entirely speculative.

There are some 18 million empty dwellings in the U.S. right now.
Maybe 4 million qualify as true "second homes" for the upper classes; the rest are, well, just empty.

Fannie and Freddie floated $5.4 trillion in mortgages off of assets of $114 billion.
So leverage of 50-to-1 is just normal business practice now. Or could that have had something to do with their demise?

Guess what FHA's leverage is: 50-to-1. Yes, FHA's "reserve" is 2% of its portfolio--and losses are driving that toward zero.

U.S. households have lost $5 trillion in home equity, $2 trillion in retirement accounts and $8 trillion in the stock market. Depending on how you add it all up, that comes to a loss of about a third of all household wealth in the past few years.
The link again: read the entire article here.  
 
Related Reading:

5 comments:

sure said...

lower end properties seem like they're overpriced by at least 40 thou right now as tax credit comes to an end.

but why not buy a house right now if you can? you're already paying for your neighbors' houses. you can put little money down. so what if it declines in value. you still need a place to live. if you cough up all the fees and costs associated w purchase right now anyway you can't afford to move any time soon. and eveybody needs a place to livc.

Anonymous said...

The tax credit will cost tax payers $15 BILLION for 2009. It will generate only 350,000 additional sales. People who were going to buy houses anyway are buying.

http://www.calculatedriskblog.com/2009/09/more-on-housing-tax-credit.html

Gigantic waste of money.

Get it while u can!!!!

Deflationary Collapse Coming said...

http://market-ticker.denninger.net/archives/1439-WARNING-Deflationary-Collapse-Dead-Ahead.html

another link said...

Active Rain Realtors weigh in on the wisdom of extending the $8k tax cred after it expires Nov 30

http://activerain.com/blogsview/1240019/nar-makes-call-to-action-to-extend-the-8000-home-buyer-tax-credit-good-or-bad-

Anonymous said...

Serious Buyer says
The Tax Credit incentivizes new homebuyers in the C'ville area to OVERPAY. List prices on the lower end of the spectrum are still grossly inflated relative to other areas in Virginia. We are not talking value here when a Seller is asking $200 sq. ft. for a 35+ yr old house with the realtor spin of "The home is habitable, but is in need of some gentle up-grading." and "Great opportunity to finish this basement off into a complete apartment." Creative?!?!