Wednesday, April 22, 2009

Housing bubble smackdown: Huge “shadow inventory” portends a bigger crash ahead

Mike Whitney
Online Journal
Wednesday, April 22, 2009

Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed.

The moratorium was initiated in January to give Obama’s anti-foreclosure program — which is a combination of mortgage modifications and refinancing — a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it’s clear now that the program will fall well short of its objective.

In March, housing prices accelerated on the downside, indicating bigger adjustments dead ahead. Trend lines are steeper now than ever before — nearly perpendicular. Housing prices are not falling, they’re crashing and crashing hard.

Now that the foreclosure moratorium has ended, notices of default (NOD) have spiked to an all-time high. These notices will turn into foreclosures in four to five months’ time, creating another cascade of foreclosures. Market analysts predict there will be 5 million more foreclosures between now and 2011. It’s a disaster bigger than Katrina. (more)

5 Reasons House Prices May Never Recover

House prices will eventually stop falling, probably in about two years. But will they ever recover to the levels we saw during the heights of boom? In some areas, prices might climb that high again. But for most markets, such a recovery will probably never happen, and would take decades it were to occur.

In an essay published today, Charles Hugh Smith explains that the bubble vaulations are probably never coming back.

  1. Once the bubble in an asset class pops, it never reflates. "It is simply a truism that bubbles never reflate, ever. Tulip bulb valuations did not rise to stratospheric heights after the Tulip Craze popped, and the Nasdaq dot-com bubble did not reinflate, either, for the very good reason that bubbles are never based on rational valuations--they are based on the psychological state of mania which cannot be reinstated once lost," Smith writes. (more)