The Housing Market has gone bonkers again, but in a different way

It was the best of times. It was the worst of times.
I'm referring to U.S. real estate in 2020, not to the French Revolution.

In one way the housing market is on the verge of a collapse that would easily rival, if not exceed, the 2008 collapse.

The Federal Housing Administration (FHA) which insures about 8 million high-risk mortgages with lower requirements – “low down payments,” “low closing costs,” and “easy credit qualifying,” it says – reported that an all-time record of 17.4% of its mortgages were delinquent in August, up from what had been the all-time record in July of 17.0%, and having doubled from a year ago.

The FHA’s mortgage portfolio always has higher delinquency rates than more risk averse portfolios. Over the past two years, about two-thirds of mortgages had credit scores at origination of 679 or below. To tamp down on the risks, the FHA began tightening up its lending standards in 2019. But it wasn’t prepared for what came next.

“Seriously delinquent” mortgages in the FHA portfolio – meaning, 90 days or more delinquent – rose to an all-time record of 11.2% in August, from 10.9% in June, having nearly tripled from 3.8% August 2019.

Imagine that. Millions of FHA-mortgages are seriously delinquent, at an even higher rate than during the 2006-2009 real estate collapse.
How could they let this happen AGAIN?!?

So are people panicking?
On the contrary. Home buyers are absolutely euphoric!

Sales of new single-family houses, based on contracts signed in August, jumped by 45.6% year-over-year to 83,000 deals, not seasonally adjusted, matching July deals, and a notch above June deals (79,000), according to the Commerce Department today. All three of them were the highest monthly sales since April 2007, but still well below the peaks in 2004 through 2006.
The “seasonally adjusted annual rate” – the number of sales for an entire year if sales continue at the August pace – jumped by 43.2% to 1.01 million houses, the highest since the November 2006.

WTF is going on?
Simply put, the distressed home owners and the euphoric home buyers have little or nothing in common.

The number of speculative houses for sale (does not include houses that homebuilders built on order for a specific buyer) has been declining since March. In other words, homebuilders are selling down their inventory of spec houses. In August, the number houses for sale dropped to 282,000 (not seasonally adjusted), the lowest since 2017. Note the pileup of spec houses during the Housing Bust when demand vanished, even as home builders continued to build. This is not case during the Pandemic

What is happening is that poor homeowners are being pushed out - again - while wealthy real estate speculators scoop up land from these distressed families.
Unlike 2006-2008, this is sustainable economically, but not socially.

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Pricknick's picture

It was created by the banks because you can't fix stupid.
A house just down the road sold for $200,000.
The buyers put just 3,000 down and together they make less than 50,000 per year.
One is now unemployed due to the virus. The other is part time due to the same. To top it off, they have a child on the way.
It was a setup from the start and I'm very sure that the house will be repossessed and made a rental next year.
And of course the current owners will be on the hook for thousands when they are forced to leave.
What a country.

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18 users have voted.

Regardless of the path in life I chose, I realize it's always forward, never straight.

Pluto's Republic's picture

What is happening is that poor homeowners are being pushed out - again - while wealthy real estate speculators scoop up land from these distressed families.

Unlike 2006-2008, this is sustainable economically, but not socially.

Both market seizures look much the same to me:

Ditto – Wealthy speculators buy homes as loans are falling.
Ditto - Banks are foreclosing or letting homes go into short sales.
Ditto - Government mortgage guaranteed loans are defaulting.
Ditto - Unemployment is extremely high.
Ditto - US splurges on robust war funding, nonetheless.
Ditto - National debt is at historic highs.
Ditto - Tax revenues are at historic lows.
Ditto - Government stimulus money pours into banks and corporations, and disappears forever..
Ditto - Workers wages are too low, with negative relative gains.
Ditto - Executive wages and bonuses are at historic highs - even as business crashes and CEO resignations soar..
Ditto - Automobile sales are failing with too much inventory
Ditto - Interest rates are set at historic lows; consumer interest is set too high.

What makes the 2020 economy more sustainable than 2008?

I see only a few places where 2020 looks positive:

2020 - The stock market remains absurdly inflated. It's like Tulip-mania on Wall Street.
2020 - The banks look much more secure since US bankers were barred from selling boobytrapped derivatives to foreign investors and banks. In other words, there are no runs on the US money markets.
2020 - The American public seems even more gullible and mind-impaired than they were in 2008. I suppose that's a positive indicator in today's savage economy..

I did just now spot a trend that might make the 2020 economy more sustainable:

2020 - The macro-economic brain damage that Alan Greenspan unleashed, circa 2004-5 has never stopped degrading the judgement of US economists. It's clear the Federal Reserve can no longer control the money supply, or themselves. The moral hazard of all that loose money unleashed at the top has mutated the role of the Federal Government and erected an obviously fake Democracy.

It evolved that US banks weren't allowed to off-load bad mortgages onto foreign banks anymore. Instead, bankers were given a "Money Window" at the Federal Reserve where they get dirt-cheap money to place carry trades on the Forex to exploit the low interest rates set by the Federal Reserve. The Government now guarantees all mortgages banks initiate, so the bankers never lose and the American people eat the losses, along with the insidious inflation. The helplessly insane Federal Reserve unleashes an endless waterfall of money in order to sustain the US economy by creating obligations that are secured by the national debt.

The US economy is being sustained by Cannibal Capitalism.

 

::: burp :::

 

[edit=typos]
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16 users have voted.

a good time to purchase a home?

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4 users have voted.

"When will our conscience's grow so tender that we will act to prevent human misery rather than avenge it?" Eleanor Roosevelt

"The secret of change is to focus all your energy, not on fighting the old, but on building the new." Socrates (469-399 BC)

Pricknick's picture

@Raggedy Ann
I've got the time.

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6 users have voted.

Regardless of the path in life I chose, I realize it's always forward, never straight.

@Pricknick @Pricknick
There aren't many of them. Even government pensions like mine are at risk. My tentative plan is to sell my house in a Chicago Suburb where there is high income and high prices and move to rural Alabama where the median income is substantially lower than here and house prices are significantly lower. Haven't checked construction prices because there is not much construction. Should be lower. Land prices MUCH lower. New house to be bought/built for cash left over from selling Illinois house.

Bought a new car Saturday. Dealers are eager to dump their 2020 models even though GM hasn't shipped their 2021's due to plant closings. Smoothest buying I ever did and I've bought a lot of cars in my life. Didn't even get the pitch for the junk coatings and worthless insurance. I told them I'm not buying it so don't bother with the pitch and they didn't!
I like the car, an Equinox with the big engine that are scarce as hen's teeth here. Traffic is murderous. Car has nice electronic side warnings and stuff. All wheel drive that's important here and probably in Alabama as they don't salt the roads. Besides, "Hey, aren't all men suckers for fast cars and faster women?" Car had one mile on it when I took it for a ride. Nine miles when I bought it. 97 miles now. What a pleasure to change lanes on the crowded expressway without having to floor the pedal and pray. Engine and trans from USA, assembled in Canada (by Union labor), 49% North American content. (49% ? electronics must be from China, but what else? Seats from Asia too?) Last car (Buick Envision) was made in China, Engine from Mexico, trans from Canada). Glad to say good riddance to it.

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8 users have voted.

We are so screwed.

Pricknick's picture

@The Voice In the Wilderness
Run from Illinois if you can.
It's not so much the worry about pensions. To me, it's the worry about current and future taxes that will kill whatever pension you have.
As for construction prices wherever, lumber is absolutely high priced nuts for now but coming down.
Do you have it in you to be your own builder? You don't ever have to swing a hammer to be your own contractor.
Controlling the build is your greatest way to having a home. You'll make mistakes just like all before you.
Yet you'll have a home you want at a discount.
Build it and you will have a home for much less than you'll ever buy one for.

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11 users have voted.

Regardless of the path in life I chose, I realize it's always forward, never straight.

Pluto's Republic's picture

@Pricknick

I've done it a few times. I was onsite every single day, and many nights. I was addicted to the experience and considered every detail. I didn't live in any of them for long. But I made money on all of them. I never had to swing a hammer.

With that being said, I can't figure out which way real estate is going to move in the next few years. Markets have become very unpredictable and extreme.

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9 users have voted.
Pricknick's picture

@Pluto's Republic

I can't figure out which way real estate is going to move in the next few years. Markets have become very unpredictable and extreme.

Are you looking for a home, a place you can live in, ownership or an investment?
I chose home over investment every time.
I will move no more. That's an accomplishment I may regret, yet I am happy.
I've built my home. I've fully paid for it. I watch the dwindling nature around me and accepted my providence.
I may never truly own what I have but I'll burn it all before I let government take it away.
That's ownership.

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11 users have voted.

Regardless of the path in life I chose, I realize it's always forward, never straight.

@Pricknick @Pricknick
An old guy in Florida was having his house repossessed because his mortgage was sold so many times that he couldn't find out where to send the payment. Held off the sheriff's police long enough by gunfire until he shot his wife and burned the house down around himself. Sad but I understand and you probably do too.

More death that Obama has to answer for.

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3 users have voted.

We are so screwed.

@Pricknick
I already know a good HVAC guy. My daughter is certified for the electrical work. I can run the ethernet and she can put on the ends. My hands are too shaky. That leaves a carpenter, a plumber, and a roofer. My oldest grandson has roofing experience from volunteer work and actually likes it. I have acrophobia and can't do anything on a roof but cling to it. Oh, I need someone to dig and pour a basement if that is possible. I'm thinking of asking the HVAC guy. People in the trades often know other people that they have worked with.

Taxes. OMIGOD. Illinois is the most regressive state ever! $6,000 a year property taxes and that is low. ost are 50% higher (I'm aggressive on appeals). Same house in the next county South would be $10,000, $15,000 in the next county West. Both are only a few miles away. I'm in a corner of Cook County that has lots of commercial property. But IL funds schools from property tax not income tax. Similar houses in Ocford AL are $800 dollars, an order of magnitude less. Ten per cent sales tax, huge gasoline tax. Low income tax. I pay zero because IL does not tax any retirement income (yet). I ran a sample through TurboTax. My income tax in AL would be $460. Peanuts. The difference is that IL exempts all retirement income including 401K/IRA withdrawals. AL, like most states does not tax SS, AL state pensions or federal pensions. They do tax 401K/IRA withdrawals. It's a rather byzantine form. Best to use tax software - another $50. When I lived in Loudoun County VA (just read yesterday that they have the highest median family income of all the counties in the USA) schools were funded by income tax. Much fairer in my opinion. If I have income I'll pay my share. If I don't, I shouldn't have to pay anything.

Why Alabama? I've mentioned that most of my descendants are living there. And NO SNOW! I hate snow. I've almost frozen to death twice as a kid (you really do start you feel warm at the end, probably the nerves shutting down). The day I retired there was 16 inches of snow. It's all relative. Minnesotans laugh that Illinoisans think they have snow.

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2 users have voted.

We are so screwed.