Housing Market Hype -- Are We Really Expected to Believe That Prices Will Rise with High Unemployment?
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"90 percent"? You mean these guys are getting another 10% off of the 34% discount they got to begin with? Such a deal! And here's the corker: "The FHFA offered bidders “synthetic financing” to reduce the up-front capital required."
Can you believe it? In other words, US taxpayers are providing the financing for PE speculators who want to reduce their risk while maximizing their profits via additional leverage. That really takes the cake, doesn't it?
In any event, the Foreclosure-to-Rental fraud accounts for a good portion of the uptick in homes sales, while all-cash buyers account for another big chunk. Check this out from CNBC:
"Close to one third of the homes that sold in August went to buyers using all cash, despite average rates on the 30-year fixed sitting around 3.6 percent. Rates appear to have less of an impact than hoped."
What does that tell you? It tells you that there were a lot of people sitting on the sidelines with their pockets stuffed with greenbacks who bought into the "housing bottom" bunkum and decided to buy a house pronto before they missed the boat. That's how propaganda works, by persuading people to do things that are against their own best interest.
Even so, there aren't enough of these all-cash buyers or investor groups to drive the market much higher. Why?
Because a vital housing market requires move-up buyers. Those are the guys who sell their starter homes and move up to something better. These people make up the bulk of organic sales. Unfortunately, that group of buyers vanished along with $7 trillion of home equity that went up in smoke following the bursting of the bubble in 2007. All that's left is the all-cash buyers and investor-types, both of whom are looking for the same thing, inexpensive or distressed homes. That's why all the action is at the low-end of the market, because that's where people feel like they can make the biggest killing.
So what happens next or, rather, what happens if the banks continue to keep prices artificially high by reducing the number of distressed homes on the market?
Answer: Sales drop off, which is exactly what's happening. This is from CNBC:
"Fewer Americans signed contracts to buy existing homes in August. After gains in home sales over the spring and summer, an industry survey surprised expectations, registering a 2.6 percent drop in pending home sales from July. This drop forecasts that final closings on existing homes will be lower heading into fall." ("After Brisk Summer, Pending Home Sales Drop in August", CNBC)
So, there's a surge in prices and activity, and then--Whammo--sales start to drop off just like that. And the reason they drop off is because unemployment is high, wages are flatlining, 40% of college graduates are drowning in debt (and can't qualify for a loan), and credit is still tight.
This is why Yale's Robert Shiller--who predicted the subprime bust long before the bubble burst-- had this to say in a paper published last week by the National Bureau of Economic Research:
"A recovery may be plausible, and home prices have been rising fairly strongly in recent months, we do not see any unambiguous indication in our expectations data of sharp upward turning point in demand for housing that some observers, and media accounts, have suggested.”
Huh? No "turning point in demand for housing"? Well then why have all the major media taken up the "housing has bottomed" meme? Could it be that they're just doing the banks' bidding by "catapulting the propaganda"? (as GW Bush famously said)