Shadow Inventory Case Study: Inventory in the Shadows Twice as Big as Normal Resale Inventory in Los Angeles and not on the MLS or for Public Viewing. Foreclosures and Distress Properties Clogging the System.
The pent up inventory is getting ready to unleash in 2010. The gigantic bet made by the bankers and Wall Street was that somehow by allowing banks to fudge numbers since the crisis started that housing would find its footing and the market would stabilize. Sweep the collapse under the bailout rug. This perceived grounding was then going to allow banks to unload these properties and avoid realizing institutional ending losses. Yet 21 months into this painful recession and trillions handed out to the banking sector, housing prices are not spiking. The tiny uptick in home prices is a mirage brought on by three major factors. First, the $8,000 tax credit lured additional home buyers into the market. Next banks have held back on the shadow inventory thus artificially lowering the supply of homes on the market. Finally, the U.S. Treasury and Federal Reserve have artificially kept mortgage rates low by buying up some $1.25 trillion in mortgage backed securities. All this and housing prices have barely stabilized in some regions while foreclosures are at record breaking heights.
Yet the problem with operating in a crony banking system is that the tainted few are merely looking out for their own gain as they always do. They tried convincing the public that what they were doing was for the good of the average American yet behind the scenes, have shot down cram down legislation at every turn and have their hand out for every bailout. In reality, the current loan modifications are a joke and recent reports by the OCC and OTS show massive amounts of re-default rates.
NPR had a show last week discussing strategic defaults. A strategic default is when someone purposely stops paying even though they have the money to make the payment. This is in contrast to say a job loss default where the person has run out of cash. It was a fascinating show. Many people had little issue with defaulting on their home. Many argued that banks received their bailout so why shouldn’t they? We can thank the government for creating one enormous moral hazard. How can you argue with the borrower’s logic? However there is a problem. The taxpayer is now on the hook for nearly every major bank and let us be honest, the bulk of the mortgages are pumped out by the too big to fail. The government is the mortgage market now. So these strategic defaults are going to harm the average taxpayer even more.
http://www.doctorhousingbubble.com/shadow-inventory-case-study-inventory-in-the-shadows-twice-as-big-as-normal-resale-inventory-in-los-angeles-and-not-on-the-mls-or-for-public-viewing-foreclosures-and-distress-properties-clogging-t/
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