Wednesday, April 3, 2019

Housing: Trending to Disaster

I must be an idiot to title a piece like I have, especially since the latest Case-Shiller housing index stated that home prices are up 20% since 2013. And of course, the government is shouting the news too. The Federal Housing Finance Agency's index is up 11% during the same period. However, those uptrends do not reveal the turning points within the market. These are points worth thinking about.
Dear Reader, the numbers are misleading because life is not an equation.
A study by Keith Jurow gives us the insight as to why I see many dark clouds on housing. Keep in mind, so goes the housing industry, so goes the economy.
Keith Uncovers
this fact from Core Logic's report on payment delinquencies. At first glance the report makes me look foolish with the Federal Housing cheering the results. They stated, "...that delinquencies are down from a 2010 high of 8.6% to a present 3.9%." - Guess I don't know what I'm writing about...
But wait! Holy Cow, Batman! Those facts did not include JUMBO loans like the ones needed to buy the bat cave.    
Two Types
of loans. The main one, sponsored by Freddie Mac and Fannie Mae are for every day people like you and me. Then, there are the type of loans for the new rich like first round draft picks. These type of loans do not get reported and Keith uncovered why.
The wealthy are all show with no substance. Their delinquency rate is off the charts. Dear Reader, the banks make their real profit from jumbo loans because they can charge higher rates of interest. They sell the every day loans to the GSE, especially if they start to go bad. This is your bailout, however dark clouds are now forming in the well-to-do loan category.
Banks can sell their portfolio of these loans like they did in the past with swaps, but lately, the Ding-Dongs aren't falling for this high yield, future bankruptcy trap. Banks are stuck with these loans on their books. Now, for the shocker. Are you sitting? The delinquency rate for these large loans ranges from 17% to 19% depending on the region of the country. The news gets worse, so grab a glass of water and have a seat. In New York City metro area, the fall down is 39%. In Miami it is 37%. Snake eyes in Vegas with a delinquency rate of 29%. The football attendence will not be kind to Da Bears. In Chicago the bad loans are up to 28%. Now, this shock will shield your ears from the roar of the Federal Housing people. Now, you realize that the report of 3.9% is just another manipulation of the truth. It takes five regular loans to match just one jumbo loan and remember there are 19 million people in the NYC metro area and 40% of the loans are jumbo. Please, Dear Reader maintain your seat. Your captain has turned on the buckle up sign.
Zombie Homes
these are foreclosed homes that sit vacant in your neighborhood since 2008. The banks have not been able to come up with the proper paper documentation to finish the foreclosure process, but the past owners have long left. You suffer with this eyesore which lowers your own home's market value. Then, there other zombie homes where they are occupied by the owner who hasn't made a payment in years. He does little upkeep on the property because deep, down inside, he knows that he will be evicted someday. There are over 15% of homes that are still under water to their mortgage according to Zillow.
Finally, and this earthquake will cause the Tsunami. Back in 2005 the loan sharks came up with this idea to keep the big bucks rolling. They developed the HEL loan. It is basically a loan based on your equity in your home. The selling point was that you, the homeowner would only have to pay interest on the loan for ten years at which time the house would appreciate more than the original loan. Didn't happen. The ten years is up! Now, the full payment must be made. Didn't the lettering H-E-L (home equity loan) clue you. This is a loan from hell! You used your house like an ATM machine and the party is over. These loans were sold to 10 million people. When the news breaks, things will be very similar to 2007 and you know what happened in 2008.
Like I said, the recent news has been very favorable to housing. People are rushing into refinancing their mortgages as they did not think that rates would fall again. This will give housing an uplift and the economy. Don't be fooled! This is a last hurrah! Due to the Fed going on pause, long rates have dropped. The shills are saying the inverted yield no longer applies! Idiots! The real problem is the printing press with currencies. Fiat money has failed, but this will never be mentioned as the real problem. People, the economy cannot get bye on 3.5% interest rates. This is a Las Vegas tell. The inverted yield concept is screaming the truth! This is why the Fed has paused. Like Duke and like Gonzaga, the game is over and only the crying is left.