Tuesday, September 14, 2010

Halfway There? Livin' on a Prayer?

Most employed in the FIRE economy are desperately spinning the bubble as done, over with, and gone. Bubble? That was soooooooo 2008-2009! They sleep well at night convincing all who will listen that there has never been a better time to buy, and that THIS must be the bottom. Michael David White is a mortgage broker who knows the game after 18 years in the business, and is rather happy to tell the cold hard truth about today's rather precarious housing market.

I have no affiliation whatsoever with Mr. White. But I do agree with his assessment that a true economic recovery for the middle class cannot be realized until the government stops meddling in the housing market, it forces bad bank loans to foreclose/default, and it allows free-market price discovery via parity with real wages when it comes to private real estate property in America. Real estate is suffering from "everybody gets a ribbon" disease. Nobody in America is allowed to fail anymore.

Mr. White has put together an interesting forecast for home prices by averaging four major data sets, including: Case-Shiller, FHFA, First American, and Freddie Mac. Here is his result:

The short version is this: Prices in 2010 will lose another 9%, and as of today the bubble is only about halfway done correcting. The "bottom" in housing prices is still a very long way down from here folks. The only question is timing; and how long all of this will drag out.

"A stat which may be of great interest is the prediction by the average of the indexes that our fall in prices is only half-way accomplished – a forecast which, if true, will elicit fear in the hearts of homeowners, buyers, bankers and government officials.

A natural fall-back in prices is a matter of the highest gravity to the Federal Reserve Bank and the Treasury and to current and future homeowners. The federal government has massively intervened in the housing market. It funds nearly 100 percent of new mortgage loans originated today.

Fed and Treasury are attempting to preserve bubble values for homeowners and save mortgage investors. Absent government intervention, housing prices would have fallen 50 percent or 75 percent by now."

Again, I ask the question: What's better for the American middle class over the long term- expensive houses with cheap money/bank loans -or- cheap houses with expensive money/real wages?

What's better for the banks?

Sadly, our elected officials have clearly continued to support the banks who fund their campaigns, as opposed to supporting a free market and the American middle class when it comes to "affordable housing".

Source: Michael David White