Posted on 04/13/2009 6:36:53 PM PDT by An Old Man
It's been 21 months since two Bear Stearns hedge funds defaulted setting off a series of events which have led to the gravest economic crisis since the Great Depression. No one expected the financial meltdown to hit this hard or spread this fast. The failure at Bear triggered a freeze in the secondary market where mortgage loans are repackaged into securities and sold to investors. That market is now completely paralyzed cutting off 40 percent of funding for consumer and business loans and thrusting the broader economy into a deep recession.
. . . . C L I P . . . .
The economy is now in a downward spiral. Tightening in the credit markets has made it harder for consumers to borrow or businesses to expand. Overextended financial institutions are forced to shed assets at firesale prices to meet margin calls from the banks. Asset deflation is ongoing with no end in sight. Price declines in housing have reached 30 percent already and are now accelerating on the downside. This is the nightmare scenario that Bernanke hoped to avoid; a capitulation in real estate that drags the rest of economy into a black hole. Economist Nouriel Roubini and market analyst Meredith Whitney predict that housing prices will drop another 20 percent before they hit bottom. Nearly half of all homeowners will be underwater and owe more on their mortgages than the current value of their homes. That will increase the foreclosures and push scores of banks into default. According to Merrill Lynch's economist David Rosenberg:
"It would take over three years to achieve price stability (in housing) The problem is that prices do not begin to stabilize until we break below eight months' supply – and they tend to deflate 3% per quarter until that happens. So as impressive as it is that the builders have taken single-family starts below underlying sales, their efforts are just not sufficient to prevent real estate prices from falling further. In fact, even if the builders were to declare a moratorium immediately, that is, taking starts to zero, demand is so weak and the unsold inventory so intractable that it would now take over three years to achieve the holy grail of price stability in the residential real estate market."
The main economic indicators all point to a long period of retrenchment ahead. The slowdown in global trade has hit Germany, Japan, and most of Asia particularly hard. The export-driven model of growth has suffered a major setback and won't rebound for some time to come. With the US consumer unable to continue his debt-fueled spending spree, surplus countries will have to develop domestic markets for growth, but it won't be easy. Chinese workers save 50 percent of what they earn and German workers already have a comfortable life without increasing personal consumption. Higher wages and lower interest rates can help stimulate demand, but cultural influences make it difficult to change spending habits. Meanwhile, the economy will continue to languish operating well below its optimum capacity.
Read more at the Market Oracle.
Mike has the story prety much on target. The only thing missing is the exact timing of the events.
Tuesday, April 7th, 2009 | By Mr. Mortgage
Foreclosures About to Soar Near-Term — Easily Back to All-Time Highs
Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season - great timing!
For months prior to March, banks/servicers were on and off of foreclosure moratoria with many on a complete hold awaiting Pres. Obama’s plan to save the housing market and homeowners. We track each foreclosure start through the entire foreclosure process individually and in aggregate — also by originator and servicer — and as soon as the Obama plan was made known, banks/servicers shifted their Notice-of-Default and Notice-of-Trustee Sale machines into overdrive.
Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days.
[snip]
Hunger does a man good, especially if he's been fat, dumb and happy all his life.
We'll all be eating trash!
A very, very good time to be armed, and alert.
Hunger does a man good, especially if he’s been fat, dumb and happy all his life.
We’ll all be eating trash!
Hey buddy, stay away from my dumpster. The food in there is all mine.
Thanks for posting. Very interesting.
Got a call just today from a buddy of mine in Reno, NV, one of the most bubbly of the housng markets. He and his wife bought a townhome for $225,000 three years ago or so. No money down, etc. (Countrywide mortgage) They want to sell. The realtor recommended a price of $75,000.
We’ll be paying for that one.
When you get tired of eating like that, come on over to our house. We can sit out on the back porch where we can discuss the finer points of growing a garden, or reloading home made ammunition.
If you get tired of that, we can always shoot and skin one of the many deer that wonder across the lawn.
Here’s a paper examining/comparing our debt deflation and finance/banking implosion to those that happened in other countries:
http://www.aeaweb.org/annual_mtg_papers/2009/retrieve.php?pdfid=245
http://www.economics.harvard.edu/files/faculty/51_Is_The_US_Subprime_Crisis_So_Different.pdf
Summary: three to four years, 7% additional unemployment from the onset of the crisis, about a doubling in the national debt.
We’re nowhere close to ‘over’ for any definition of the word ‘over.’ Worse, the Obama administration (as well as the Fed) appear intent on a) studying all the mistakes of the Japanese in the 1990’s, and b) repeating them.
ping
People on FR who have been paying attention to the housing bubble posts for the last two to three years have seen me thumping the table, saying that double-digit percentage declines in the value of housing was not impossible. I’ve pointed out repeatedly that housing is like any other asset class — it is possible to over or under-value it.
THE market that made me such a whinge on the subject of home prices was Reno. When we’d drive into Reno from our farm 250 miles to the east in the middle of nowheresville, NV, I’d see these developments going up like boxes of schlock California tract housing. Then about 2006, when I’d be driving through some of these developments during the day, I’d notice very few “For Sale” signs - yet, there were some developments where 50% or more of the houses appeared to be unoccupied.
Upon stopping and talking to people in a couple of these developments, I learned that people with NO experience in real estate development, investing, etc - had decided a) that they liked their house so much, they’d b) buy the houses on either side of them - with a down payment of equity cashed out of their owner-occupied house, and they’d then use that on a low-down or funky loan to buy the house (or houses - nb plural) on either side of them for speculation.
These were just Joe Bob Homeowners, speculating on residential real estate.
That’s when I knew this crap was going to hit the fan. I liken that moment to ones like Bernard Baruch getting stock tips on Wall St. from the shoeshine boy — it tells you that you’re near or at the top of the market.
I have been busy the last few weeks getting ready for the spring planting. From the looks of things it will be a few more weeks before the ground can be worked. How are things going where you live?
I have tomatos and peppers (from seeds) that are seven inches high, onions out of the ground about three inches and corn in the next field is already a good six inches high too. We've had a very wet spring so far. Overall doing good.
I'm not planting a big full garden until necessary. I have food stored that can get me through harvest when that decision is made.
Brother-in-law says if it stays cold in S. Oklahoma much longer this spring ...he’s moving!
‘Bout the coldest spring we’ve had in memory in the Arkansas River Valley.
use it up wear it out make it do or do without
I grew up with that mantra- served my parents well. Big garden, alot of canning, alot of really nice home-sewn clothing, out of chicken feed sacks to a large degree...
You said — Brother-in-law says if it stays cold in S. Oklahoma much longer this spring ...he’s moving!
—
I’ve been saying if it gets any hotter in Oklahoma, I’m gonna move... :-)
Of course, I’m sorta used to Oregon temperatures...
This week the TV weather girl is predicting nighttime temperatures in the high 20's tonight, and two nights following.
I guess it must be true. We only have two seasons here! Winter and the 4th of July.
I bet your mom used to make dresses for the girls out of those patterned flour sacks also. Mine did!
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