OCTOBER 18, 2011

When a 30-Year Mortgage is a 30-Year Prison Sentence

Dont Be Suckered Into Buying a House Now

by MIKE WHITNEY

Dont even think about buying a house for the next year or so. Not unless you can afford to flush tens of thousands of dollars down the toilet, because thats what youll be doing. Heres whats happening. As everyone knows, housing is driven by the same supplydemand dynamics as every other market. The problem is, the banksters have gamed the system so it looks like theres less inventory then there really is, so prices are higher than they should be. By keeping millions of homes off the market the banks are protecting themselves from bigger losses. Unfortunately, its the buyer who ends up being the victim in this market-rigging scam. Now take a look at this goofy article in Mondays Wall Street Journal and Ill try to explain whats really going on: The housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory. There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007. The report is the latest sign of how the U.S. housing market cant seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isnt the case right now. Instead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at todays discounted prices. At the same time, banks have been more slowly moving to take back properties through foreclosure ever since processing irregularities surfaced last fall, temporarily reducing the supply of foreclosed properties. The shrinking supply isnt driving up prices because demand is soft. Yet there is still a substantial shadow supply of foreclosures and other distressed homes, estimated to be more than one million, that is likely to stream onto the market in the coming years. The pent-up supply is another constraint on any of the price gains that might normally occur when supply falls. (Slim Pickings Are Latest Headache for Home Sales, Wall Street Journal)

Excuse me? Shadow inventory is around one million homes? Youve got to be kidding? Theres so much wrong with this article, its hard to know where to begin. First of all, the reason why people arent scarfing up homes at current prices has nothing to do with the lack of attractive inventory. Thats a load of malarkey. Its because they no longer have confidence in the system. And why would they? After all, theyve just seen their family and friends just get reamed in the biggest mortgage fraud scam in history. Are they supposed to go rushing back in to the market with money-in-hand so they can get fleeced too? Not likely. Besides, owning a house isnt what it used to be. Not by a long shot. It used to be the cornerstone of the American dream and entre into the middle class. No more. Owning a house today means that one is shackled to a sinking asset that limits ones options and mobility. Lets face it, that 5-bedroom McMansion with the marble countertops is the albatross that keeps people toiling-away in the cube-farms until the day they get carted off to Potters Field. A 30-year mortgage is a 30-year prison sentence. Also, the whole falling inventories story is pure bunkum. The housing backlog has mushroomed in recent years eclipsing anything in the history of the industry. The banks are just keeping homes off-market to save their own bacon. The whole thing is a joke. The only reason the charade goes on is because the government is in bed with the banksconcealing the detailsso the rip off can continue without pause. Its just more industrial-scale collusion. Now check out this clip from an excellent report by McClatchy News: The housing markets ballooning shadow inventory buoyed by a yearlong foreclosure slowdown stands as the most menacing obstacle to the recovery of the residential real estate market. A McClatchy analysis of four years of foreclosure data and thousands of property records found record-high levels of shadow inventory in several housing markets across the nation. In the supply-and-demand-reliant real estate market, the national supply of homes is officially listed at about 3.5 million, or about nine months worth; sales are on track to reach about 5 million this year. But once shadow inventory is added, that supply more than doubles, to at least 7.5 million..(Millions of homes lurk on bank inventories, casting doubts of rebound, McClatchy News) Got that? The real supply of homes is actually double the amount thats being reported. So that means that the $400,000 rambler Mr Jones is planning to buy with his hard-earned money is probably worth about, uhm, $200,000. So, Mr.Jones is

basically getting bent-over by the bankers while Uncle Sam sits in the bleachers applauding. Isnt that whats going on? And everyone wonders why public confidence is so low? More from McClatchy: In the aftermath of the largest home-repossession campaign in history, mortgage lenders are holding properties off the market as a matter of strategy. . a growing number of vacant homes have sat idle on banks balance sheets for several years. According to the data firm CoreLogic, which has one of the more conservative estimates of shadow inventory, mortgage debt outstanding in the shadow inventory is about $336 billion. Liquidating REO homes through the sales process usually leads to significant write-downs on bank balance sheets. Wary of seeing such large losses appear in earnest on their books, lenders have been reluctant to deal with bad loans head-on, said Ira Rheingold, the executive director of the National Association of Consumer Advocates. Theyre afraid, he said. They dont want to take those paper losses. Their books show that they have these assets that are worth X amount of money. But those values are not real. Afraid? The banks are afraid? The banks may be broke, busted, underwater, insolvent, and kaput, but afraid? No, theyre not afraid. Why would they be? They have powerful friends in Washington who will bail them out whenever they get into a jam. Just look at the Feds balance sheet; $2 trillion and rising. And every dollar spent was gifted to some shifty Wall Street bankster who got caught up in his own crooked Ponzi-swindle. McClatchy again: The outlook for shadow inventory has worsened considerably over the last year because of lender paperwork problems that have gummed up the foreclosure system. More than a million foreclosures that were supposed to be completed this year have been pushed into the future, prolonging the housing crisis, RealtyTrac found. Nationwide, there are 2.2 million homes stuck somewhere in the foreclosure process, and many of those cases have completely stalled.

Additionally, banks arent selling homes fast enough to justify more aggressive foreclosure filings. Even at the currently slowed pace, foreclosure starts are three times higher than foreclosure sales are, meaning that properties are being loaded onto the conveyor belt much faster than theyre being taken off. Its kind of like a pig in a python, Blomquist said. As you start to see more of foreclosure sales and that inventory is cleared out, then youll begin to see more new filings. (Millions of homes lurk on bank inventories, casting doubts of rebound, McClatchy News) Okay. So, housing sales have stalled, foreclosures are stacked up from here to kingdomcome, and Obama and his GOP cohorts are determined to cut public spending and shave entitlements. Doesnt that sound a bit like a deflationary spiral to you? Bottom line: Prices have only one way to go; down, down, DOWN. Still thinking about buying a house? Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com