The Upside Down Market
Imagine a world where people of all ages could purchase homes for a fair price. A world where prices were set between a willing buyer and seller. If the buyer needed a loan, the buyer would go to a bank or lender of choice and negotiate their terms, the number of years, interest rate, and down payment needed. This world is called the free market, where sellers are restrained from raising prices too much because of a finite pool of buyers and buyers who have a finite amount of money. If a free market was once again adopted by the people of the United States, we might actually be able to return to an ownership society where people value other people's private property in all places of the economy, not just housing. Unfortunately, that is not the world we live in.
We live in an upside down centrally planned government manipulated economy that enriches the powers that be and enslaves the rest of us, most Americans that we know are by definition, indentured servants.
Now, before we get into our analysis of the housing market, let us first define a sustainable recovery. In our opinion, a sustainable and desired recovery is where the above mentioned is true, a market driven price, not a government manipulated price that enslaves its citizens. So, in our world because the government has caused such great imbalances, in order to have a real housing recovery, we need to first allow housing prices to collapse. Only a housing crash will make homes affordable and give us a sustainable housing recovery.
Propped Up
Right now we have the government (taxpayers) either funding or backing 90% of home mortgages. We have the Federal Reserve artificially suppressing interest rates by setting the Fed funds rate near zero and printing money to purchase U.S. bonds. We also have the mortgage tax deduction which is an absolute scam, everyday average Americans actually look down on paying off a house, they see the mortgage deduction as a huge benefit of owning a home.
Of course the banks and the government have rammed so much propaganda down our throats it's no wonder people are so excited to spend an extra dollar so that they can receive 30 cents back. All interest deductions are a scam in order to get people to pay the banks more money because remember, if you are talked into buying more than you can afford, what is the first thing your mortgage broker or realtor will say to you, "don't worry if the payment is a little higher than you can afford, remember, all the interest is tax deductible." Of course this attitude and perception only adds to the government manipulation of higher home prices.
Now we know that we are potentially offending a lot of people right now, but please note that the government definition of home affordability is helping you afford the payment to the bank. The free market would never allow something as ridiculous as a 30 year loan, no money down, and everyone in every area paying roughly the same interest rate when receiving a loan. These type of government created and supported injections into the housing market has created an unsustainable housing market that has taken decades to build.
In 2008, we saw how disastrous government involvement of making homes more (payment) affordable can devastate the lives of its citizens and the perception of their wealth. Even after seeing a top in a government driven housing market, the government has decided to continue to use taxpayer dollars in order to try and prop up prices. Last week Fannie Mae requested an additional 6.2 billion from the treasury, Fannie Mae has already stolen over 100 billion in taxpayer dollars. Currently, taxpayers are also guaranteeing loans all the way up to $729,750, amazing isn't it! How many people can afford that type of home, not many, yet millions are being forced to pay taxes so that the banks can sleep at night knowing that if they make a bad loan, they won't have to suffer the consequences.
The entire government created housing market is literally imploding on itself as we speak. According to the census bureau, 13% of all homes in America are vacant. No wonder new home sales are down 88% from their peak, we overbuilt homes due to the fake wealth effect of easy government backed money. We have so many foreclosures in this country that the average foreclosure is now 17 months, two years ago it was 11 months, and in many states just 4 years ago it took less than 6 months.
New home sales are a bit misleading, did we expect anything less from government data? New home sales is actually only counting new home sale's contracts entered into. Never do they account for cancellations, which recently have been reported as high as 35%. Foreclosures for 2011 are expected to rise to a new record of 20%. We know we are in a recovery, but if you look at demographics, housing, inflation, fraud, unemployment, and government debt, the green shoots in the economy start to look more and more like the green shoots in a diaper.
New Home Sales Chart
Right now 28.4% of homeowners are upside down. In places like Phoenix where investors swarmed during the peak in order to buy a home that is located literally in the middle of a desert, 68% of homes are upside down. Now in our opinion, both these numbers need to be a lot higher in order to actually see a real sustainable housing recovery. Once people walk away from these homes, housing prices should begin to fall some more which will cause more people to walk away until housing becomes truly affordable. It doesn't make us any happier in saying this than it does when a Doctor has to tell you that in order to cure you, the therapy will be somewhat discomforting.
Right now America's housing market is like someone walking around with a broken leg, but is forced to try and run. The government gives them special crutches, pain medicine, and even special padded shoes, but the fact remains the leg is broken. Until this person allows their leg to heal, they will never be able to run correctly. Our housing market is expected to break records for foreclosures this year. So far we have seen price declines at their fastest pace since 2008, yet we still have artificially low interest rates, government programs, and tax schemes. Our markets are not functioning right because they are dependent on low interest rates set by central planners and the government forcefully stealing money from one group of people in order to help others purchase over priced homes.
Trend Alert
FutureMoneyTrends.com's official prediction on housing is that it will progressively get worse. As jobs are either exported overseas or turned into minimum wage jobs in the U.S., there will be no driver for a defined government housing recovery where prices rise due to demand coming from government programs and artificially low interest rates. The government has demographics working against them, jobs, and they are trying to stimulate an already over leveraged population. If interest rates were to even pick up just a tad, this would send housing prices crashing down as consumers can barely afford homes at 4 to 6% interest rates. Remember, even though housing has only declined by 33% from its peak, this number is in dollars. The dollar index at the housing peak was around 87, today it is 75, the Euro has increased 16% vs the dollar, gold is up 191%, silver is up 288%, gas is up 71%, and of course food has gone up significantly from the housing peak in 2006.
Housing, in our opinion, will continue to be extremely dysfunctional as long as the government feels that it has a mandate to prop prices up and make higher home price payments affordable. Either way, we feel that the best thing for the market and future home buyers is to see prices fall to realistic levels that can only be determined between an individual buyer and seller. Of course the mindset of home buying will also have to change to the desire for real home ownership.
In closing, if you want to see a real recovery, allow the market to correct, allow prices to become affordable. Educate others and help free them from the propaganda they receive from those directly involved in the housing market, as well as economic professors, government agencies, and of course the banks.
Americans don't need help making payments, we don't need to take money from other taxpayers in order to buy a home, we just need the government to GET OUT of the housing market and our wallets.
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