defaults and foreclosures created housing slump
Courtesy of Irvine Housing Group

The housing slump is worse than we thought. Many of the homes now being foreclosed were speculations hoping to be sold in a rising market. What that means is that occupancy rates in apartments and rentals, will not rise concurrently as is usual when mortgage foreclosures rise.

That also means that the housing market slump will have to be resuscitated by fewer people. In other words, who out there is left to buy houses?….During 2005 and 2006 one out of every four houses was bought by a speculator with no intention of living in them.
This new data coupled with the realization last summer that most of the bundled loans are junk, and never will be repayed, has stopped the housing market cold. Any type of industry relying on the housing market, has already shut down and laid off employees.

Ohio and Michigan are in official depressions now, no longer calling it just a recession. Of course the Mid-Atlantic area has not been hit as hard as some. As is often the case, there are regional pockets of economic stagnation scattered across the country: remember Dallas and Houston during the nineties’ oil glut?. But when the new housing market climb begin, now with this new revelation, no one knows. As this new information filters up the pipeline, to expect another tumble in stocks would be realistic.

This year we see what might amount to the perfect storm. For just as the house values bottom out, the ARM rises, utility bills peak, and above all, food climbs to prices not even dreamed of. $3.50 for gas, $5.00 for milk, and 4$ for cheap bread. We will experience inflation like most of you have never seen. And we will be too poor to do anything about it.The standard measurement among economists is that for every dollar of lost equity in ones home, the homeowner lose 7 cents in real income. Based on this number the tax rebates this spring and summer will fall short of what will be needed.

There is one way to save the entire economy. Drop the Fed to 1%, keeping mortgage rates at 3%. Then push for the refinancing of ARM’s across the board. Whether it takes legislation or not, no one should lose a home to an ARM. Forget about signals of panic. We need people refinancing and buying houses by May!

Talking about these matters one gets the same feeling as standing on a Thai beach, watching the sea, following with your eye a tiny black line edging closer and getting bigger. The sooner you act, the less danger you will be.

If your are close to retirement, secure your assets. Worry about losses. Don’t worry about growth.

If you are just getting started, stay with the high rollers. All the monies you will be putting in will be buying up stocks at bargain rates, and when they recover……….Wow!