The U.S. housing market is dying. You will only hear hints of this on the mainstream news and from the politicians in Washington D.C., but as statistic after statistic continues to roll in, the reality of what is happening is becoming very difficult to deny.
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Up until the end of April, the giant tax credit that the U.S. government was bribing home buyers with helped stabilise the real estate market, but now that the tax credit has expired the decline of the U.S. housing market has resumed. Mortgage defaults continue to set new records. Foreclosures continue to set new records. Home repossessions by banks continue to set new records. The number of homes being constructed and the number of Americans applying for home loans is at stunningly low levels.
For decades, owning a home has been touted as the very heart of “the American Dream”, but today that dream is out of reach for an increasing number of Americans. Why? It is because there are not nearly enough jobs for everyone. Without a jobs recovery, there simply is not going to be a housing recovery. Unfortunately, as the U.S. economy continues to come apart like a 20 dollar suit, even more Americans are going to lose their jobs and the U.S. housing industry will continue to experience a very painful decline.
The truth is that this is not a short-term downturn in the housing market. During the past two decades, an insane amount of debt fuelled an artificial housing bubble that drove home prices to ridiculous levels. Now the U.S. housing market is trying to correct itself, and no matter how many trillions of dollars the U.S. government throws at the problem the fundamentals of the marketplace are still going to have their way eventually.
The U.S. economy is in decline. The employment situation is going to go from bad to worse. Americans without jobs are Americans that cannot buy homes. Millions of Americans who are employed are finding it increasingly difficult to make it from month to month. The truth is that there is no way that Americans can afford the ridiculously inflated home prices that we have seen over the past decade any longer.
So, yes, the U.S. housing market is headed for a complete and total nightmare.
So exactly how bad are things out there right now?
The following are 15 signs that the U.S. housing market is headed for a complete and total nightmare….
Sales of new and existing homes in the U.S. are at depressingly low levels. For example, during the month of May sales of new homes in the U.S. declined to the lowest level ever recorded. Yes, you read that correctly. The U.S. Department of Commerce began tracking sales of new homes back in 1963, and since that time the number of new homes sold has never been as low as it was in May.
Not only that, but existing home sales (which had been faring a bit better) are also showing signs of serious decline. In the month of July, sales of existing homes in southern California fell nearly 22% from a year earlier. In Austin, Texas sales of homes declined 25% from a year ago in the month of July. The truth is that home prices are still way too high. As prices begin to decline that should help home sales a bit, but the truth is that the days of the real estate boom are gone and they not coming back.
Construction of new homes in the United States has screeched to a standstill. There are way too many homes for sale already, and so most home builders have dramatically cut back on their building plans. Construction of new homes in the U.S. and applications to build new homes in the U.S. both fell to their lowest levels in more than a year during the month of July.
Unfortunately, it doesn't look like this is going to turn around any time soon. An important measure of home builder confidence fell to a 17 month low in August. There is a whole lot of pessimism in the housing industry right now, and that means that the employment outlook in all of the industries that depend on the housing industry is likely to continue to be quite grim.
Americans do not seem very eager to apply for home loans right now. The Mortgage Bankers Association recently announced that demand for loans to purchase U.S. homes has sunk to a 13-year low. Very, very few people pay cash for their homes these days, so without more loans there is not going to be an increase in housing sales.
Foreclosures continue to set new records. The number of home foreclosures set a record for the second consecutive month in the month of May. According to RealtyTrac, a total of 1.65 million U.S. properties received foreclosure filings during the first half of 2010.
That is a stunningly high figure. All of these foreclosures are just going to add to the massively bloated inventory of unsold homes in the United States. As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, which was up 20 per cent from a year ago. Somehow U.S. banks have to get rid of this giant mountain of homes. Needless to say, this is going to have a significant depressing effect on housing prices.
Banks across the United States are ramping up their efforts to repossess homes. The days when homeowners in default could endlessly sit in their homes rent-free is coming to an end. U.S. Banks repossessed 269,962 U.S. homes during the second quarter of 2010, which was a new all-time record.
U.S. banks are writing off a staggering amount of mortgage debt. In fact, major U.S. banks wrote off approximately $8 billion on mortgages during the quarter of 2010, and if this pace continues it will even exceed 2009's staggering full-year total of $31 billion.
The number of Americans falling behind on their mortgages continues to increase. The Mortgage Bankers Association recently announced that more than 10% of all U.S. homeowners with a mortgage missed at least one mortgage payment during the first quarter of 2010.
That was a new all-time record and represented an increase from 9.1 per cent during the same time period in 2009. Mortgage delinquencies are also growing at a very alarming pace at mortgage giants Fannie Mae and Freddie Mac. As of March 31st, serious mortgages delinquencies at Fannie and Freddie had increased over 50 per cent from a year earlier as the Christian Science Monitor recently explained:
As of March 31 this year, 6.3 per cent of mortgages held by Fannie and Freddie are either seriously delinquent or in foreclosure. Although that's down slightly from the figure three months earlier, it represents a big one-year rise (from 3.9 per cent in early 2009).
Because of so many Americans defaulting on their mortgages in recent years, banks and lending institutions have significantly tightened their lending standards.
It is much more difficult to get a home loan at this point. If you have tried to get a home loan lately you know exactly what is happening. Higher lending standards mean that fewer people get home loans. If fewer people get home loans, fewer homes will be sold. With less competition in the marketplace, home prices will continue to decline.
Home prices are still way, way too high for most people to be able to afford them. The truth is that only the top 5 per cent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975.
The housing market got way, way out of balance over the last couple of decades, and market fundamentals are going to try to push housing prices down to a level where average Americans can actually afford them.
Americans need jobs to be able to afford homes, and right now unemployment is at stunningly high levels. According to one recent survey, 28% of U.S. households have at least one member that is looking for a full-time job.
The number of the long-term unemployed in America continues to set record after record. So where did all the jobs go? They got shipped overseas and they aren't coming back. The debt-fuelled prosperity of the last couple of decades masked that reality for a time, but now that the debt bubble is beginning to pop it is rapidly becoming apparent that the U.S. economy now cannot provide nearly enough jobs for everyone. But without a jobs recovery there simply is not going to be a housing recovery.
Rising numbers of Americans continue to go bankrupt. The truth is that the American people are tapped out. 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 per cent increase over 2008.
Even Barack Obama, usually the biggest cheerleader for the economy, is admitting that the housing market is in bad shape. 'The housing market is still a big drag on the economy as a whole,' Obama said recently. 'It is going to take some time for us to absorb this inventory, that was really too high.'
The giant tax credit that the U.S. government was offering to home buyers artificially inflated the U.S. housing market up until April of this year.
But now that it is gone, there is no more safety net for the U.S. housing industry. The market fundamentals that have been trying to force housing prices down are going to continue to do so, and unless the U.S. government intervenes it is inevitable that we are going to see housing prices decrease significantly.
The two 'twin pillars' of the U.S. mortgage industry are a complete and total mess. It is being reported that it could take up to 5 trillion MORE dollars to completely 'fix' Fannie Mae and Freddie Mac.
But without Fannie Mae and Freddie Mac we might not even have a mortgage industry at this point. Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration backed approximately 90 per cent of all U.S. home loans during the first half of 2010.
The overall U.S. economy is absolutely drowning in debt, and as this debt bubble bursts it is going to take the U.S. housing market down with it. Right now, the total of all government, business and consumer debt in the United States is somewhere in the neighbourhood of 360 per cent of GDP.
At no point in U.S. history has that number ever gotten anywhere close to that high. It is the biggest debt bubble in the history of the world, and it is beginning to pop. As it does, one of the areas that will be hit the hardest will be the housing market.
Those waiting for U.S. housing prices to return to the levels of three or four years ago are living in fantasy land. Absent the onset of hyperinflation (which would cause the price of everything to rise dramatically), housing prices are simply not going to return to those levels.
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