Thursday, May 28, 2015

Real Facts And Numbers About Housing

$79,050 / 3br - 994ft2 - Custom Touches! (Fort Wayne)

I hereby nominate Jim for an honesty award. In a recent article, a fellow by the name of Jim Quinn wrote about how Washington has started to manufacture the next housing bust and how Edward J. Pinto, a former Fannie Mae official, estimates that under standard accounting practices the agency is already insolvent to the tune of $25 billion. In their frantic effort to generate the appearance of economic recovery Quinn delves into how Washington is gambling with taxpayer’s money to encourage and lure unsuspecting blue collar folks into buying houses they can’t afford.

Jim writes; This time it is your government, aided and abetted by the Federal Reserve, that is actively promoting the lending of money to people incapable of paying it back. And again, you the taxpayer will be on the hook when it predictably blows up. I solidly agree with Jim and others who have little faith in our so-called housing recovery. People should note that much of the new housing being built because of super low-interest rates is in the multifamily sector. While new units continue to be built it must also be recognized that a huge number of houses and apartments sit empty. What I really appreciated was the story Jim told where he used real numbers that did not sugar coat the truth as to what is happening in large areas of the country.

In Jim's words; I have personal experience with a current FHA mortgage transaction as my 79 year-old widowed mother is in the midst of selling the 900 square foot row home that she has lived in for 58 years in the first ring of suburbs outside of Philadelphia. It was once a vibrant middle-class neighborhood of working folk but has been gradually decaying as the old guard dies off and is replaced by lower class Section 8 tenants. She is selling ten years too late as prices have dropped 30% since 2005. She asked $72,900 and received an offer within two weeks of $66,000, with a $4,000 closing credit. My siblings and I didn’t expect her to get an offer in the 60s, as the dump next door was sold for $30,000 and went Section 8 a couple years ago. Anyone buying this house is destined for another 30% loss over the next ten years. So we told her to take the offer before it was too late.

It is so damn good to see some real numbers in a post it almost brought tears to my eyes. Yes, the numbers Jim has used are real and the kind that exists in many places in America. These are not "Wall Street" numbers. The fact is not every house sells for $600,000. Yes, houses are available at affordable prices. This is something I see every day here in the Midwest where we seem to be far more in touch with reality and the true economy is less distorted. Jim goes on to say he feels the FHA thinks it is necessary for them to lure low income, low IQ, credit challenged dupes into the housing market. To bring this about those at the FHA are busy issuing risky mortgages that are being underwritten by thinly capitalized non-banks and guaranteed by the FHA.

In 2012 the large Wall Street banks represented 65.4% of FHA-backed loans. That number is now 29.6%, as even the risk seeking Wall Street banks have come to their senses and realize loaning money to people that won’t be able to repay them will end badly, we are being prepped for a replay of what occurred in 2008. The politically motivated government is insuring subprime mortgages with down payments of 3.5%, using weak underwriting standards. They are even easing restrictions on borrowers with past foreclosures, in a housing market that may drop some 20% when this Fed/Wall Street housing bubble pops we can expect a rough ride ahead.

Jim says the entire manufactured housing recovery responsible for driving the average home prices up 30% since 2012, has been driven forward on the high end by Wall Street hedge funds, buying  foreclosures in bulk with a scheme to rent them out. In addition to the money from hedge funds it does not hurt that hot money and cash from Chinese and Russian oligarchs is also flowing into this market. It would be wise to remember this market is built on a very weak foundation with the low end being propped up by Fannie, Freddie, and the FHA with their brilliant idea to insure 3.5% down payment mortgages to those who will not be able to withstand the next downturn.

The article I reference was written by Jim Quinn and can be viewed by hitting on this link. I have owned an apartment complex in the Midwest for many years and we are currently experiencing the largest number of vacancies we have ever had. Many houses in my area are empty or under leased. In 2005 and 2006 prior to the housing collapse, many people were looking at second homes, today not only have people shed the extra home many have doubled up with family or friends reducing the need for housing. I have been busy trying to make sense of the current economy, this is not an easy job. We are pushing on a string and calling it demand when someone who can barely pay the rent is encouraged by the government to buy a house they can neither afford or maintain. We have a shortage of "qualified" buyers and renters. An earlier article that I wrote on this subject can be found below.

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