15 Signs That The U.S. Housing Market Is Headed For Complete And Total Collapse

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The U.S. housing market is dying.  You will only hear hints of this on the mainstream news and from the politicians in Washington D.C., but as statistic after statistic continues to roll in, the reality of what is happening is becoming very difficult to deny.  Up until the end of April, the giant tax credit that the U.S. government was bribing home buyers with helped stabilize the real estate market, but now that the tax credit has expired the decline of the U.S. housing market has resumed.  Mortgage defaults continue to set new records.  Foreclosures continue to set new records.  Home repossessions by banks continue to set new records.  The number of homes being constructed and the number of Americans applying for home loans is at stunningly low levels.  For decades, owning a home has been touted as the very heart of “the American Dream”, but today that dream is out of reach for an increasing number of Americans.  Why?  It is because there are not nearly enough jobs for everyone.  Without a jobs recovery, there simply is not going to be a housing recovery.  Unfortunately, as the U.S. economy continues to come apart like a 20 dollar suit, even more Americans are going to lose their jobs and the U.S. housing industry will continue to experience a very painful decline.


The truth is that this is not a short-term downturn in the housing market.  During the past two decades, an insane amount of debt fueled an artificial housing bubble that drove home prices to ridiculous levels.  Now the U.S. housing market is trying to correct itself, and no matter how many trillions of dollars the U.S. government throws at the problem the fundamentals of the marketplace are still going to have their way eventually.

So exactly how bad are things out there right now?

The following are 15 signs that the U.S. housing market is headed for a complete and total nightmare….

1 – Sales of new and existing homes in the U.S. are at depressingly low levels.  For example, during the month of May sales of new homes in the U.S. declined to the lowest level ever recorded.  Yes, you read that correctly.  The U.S. Department of Commerce began tracking sales of new homes back in 1963, and since that time the number of new homes sold has never been as low as it was in May.  Not only that, but existing home sales (which had been faring a bit better) are also showing signs of serious decline.  In the month of July, sales of existing homes in southern California fell nearly 22% from a year earlier.  In Austin, Texas sales of homes declined 25% from a year ago in the month of July.  The truth is that home prices are still way too high.  As prices begin to decline that should help home sales a bit, but the truth is that the days of the real estate boom are gone and they not coming back.

2 – Construction of new homes in the United States has screeched to a standstill.  There are way too many homes for sale already, and so most home builders have dramatically cut back on their building plans.  Construction of new homes in the U.S. and applications to build new homes in the U.S. both fell to their lowest levels in more than a year during the month of July.  Unfortunately, it doesn’t look like this is going to turn around any time soon.  An important measure of home builder confidence fell to a 17 month low in August.  There is a whole lot of pessimism in the housing industry right now, and that means that the employment outlook in all of the industries that depend on the housing industry is likely to continue to be quite grim.

3 – Americans do not seem very eager to apply for home loans right now.  The Mortgage Bankers Association recently announced that demand for loans to purchase U.S. homes has sunk to a 13-year low.  Very, very few people pay cash for their homes these days, so without more loans there is not going to be an increase in housing sales.

4 – Foreclosures continue to set new records.  The number of home foreclosures set a record for the second consecutive month in the month of May.  According to RealtyTrac, a total of 1.65 million U.S. properties received foreclosure filings during the first half of 2010.  That is a stunningly high figure.  All of these foreclosures are just going to add to the massively bloated inventory of unsold homes in the United States.  As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, which was up 20 percent from a year ago.  Somehow U.S. banks have to get rid of this giant mountain of homes.  Needless to say, this is going to have a significant depressing effect on housing prices.

5 – Banks across the United States are ramping up their efforts to repossess homes.  The days when homeowners in default could endlessly sit in their homes rent-free is coming to an end.  U.S. Banks repossessed 269,962 U.S. homes during the second quarter of 2010, which was a new all-time record.

6 – U.S. banks are writing off a staggering amount of mortgage debt.  In fact, major U.S. banks wrote off approximately $8 billion on mortgages during the quarter of 2010, and if this pace continues it will even exceed 2009’s staggering full-year total of $31 billion.

7 – The number of Americans falling behind on their mortgages continues to increase.  The Mortgage Bankers Association recently announced that more than 10% of all U.S. homeowners with a mortgage missed at least one mortgage payment during the first quarter of 2010.  That was a new all-time record and represented an increase from 9.1 percent during the same time period in 2009.  Mortgage delinquencies are also growing at a very alarming pace at mortgage giants Fannie Mae and Freddie Mac.  As of March 31st, serious mortgages delinquencies at Fannie and Freddie had increased over 50 percent from a year earlier as the Christian Science Monitor recently explained….

As of March 31 this year, 6.3 percent of mortgages held by Fannie and Freddie are either seriously delinquent or in foreclosure. Although that’s down slightly from the figure three months earlier, it represents a big one-year rise (from 3.9 percent in early 2009).

8 – Because of so many Americans defaulting on their mortgages in recent years, banks and lending institutions have significantly tightened their lending standards.  It is much more difficult to get a home loan at this point.  If you have tried to get a home loan lately you know exactly what is happening.  Higher lending standards mean that less people get home loans.  If less people get home loans, less homes will be sold.  With less competition in the marketplace, home prices will continue to decline.

9 – Home prices are still way, way too high for most people to be able to afford them.  The truth is that only the top 5 percent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975.  The housing market got way, way out of balance over the last couple of decades, and market fundamentals are going to try to push housing prices down to a level where average Americans can actually afford them.

10 – Americans need jobs to be able to afford homes, and right now unemployment is at stunningly high levels.  According to one recent survey, 28% of U.S. households have at least one member that is looking for a full-time job.  The number of the long-term unemployed in America continues to set record after record.  So where did all the jobs go?  They got shipped overseas and they aren’t coming back.  The debt-fueled prosperity of the last couple of decades masked that reality for a time, but now that the debt bubble is beginning to pop it is rapidly becoming apparent that the U.S. economy now cannot provide nearly enough jobs for everyone.  But without a jobs recovery there simply is not going to be a housing recovery.

11 – Record numbers of Americans continue to go bankrupt.  The truth is that the American people are tapped out.  1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.

12 – Even Barack Obama, usually the biggest cheerleader for the economy, is admitting that the housing market is in bad shape.  “The housing market is still a big drag on the economy as a whole,” Obama said recently. “It is going to take some time for us to absorb this inventory, that was really too high.”

13 – The giant tax credit that the U.S. government was offering to home buyers artifically inflated the U.S. housing market up until April of this year.  But now that it is gone, there is no more safety net for the U.S. housing industry.  The market fundamentals that have been trying to force housing prices down are going to continue to do so, and unless the U.S. government intervenes it is inevitable that we are going to see housing prices decrease significantly.

14 – The two “twin pillars” of the U.S. mortgage industry are a complete and total mess.  It is being reported that it could take up to 5 trillion MORE dollars to completely “fix” Fannie Mae and Freddie Mac.  But without Fannie Mae and Freddic Mac we might not even have a mortgage industry at this point.  Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration backed approximately 90 percent of all U.S. home loans during the first half of 2010.

15 – The overall U.S. economy is absolutely drowning in debt, and as this debt bubble bursts it is going to take the U.S. housing market down with it.  Right now, the total of all government, business and consumer debt in the United States is somewhere in the neighborhood of 360 percent of GDP.  At no point in U.S. history has that number ever gotten anywhere close to that high.  It is the biggest debt bubble in the history of the world, and it is beginning to pop.  As it does, one of the areas that will be hit the hardest will be the housing market.

Those waiting for U.S. housing prices to return to the levels of three or four years ago are living in fantasy land.  Absent the onset of hyperinflation (which would cause the price of everything to rise dramatically), housing prices are simply not going to return to those levels.

The U.S. economy is in decline.  The employment situation is going to go from bad to worse.  Americans without jobs are Americans that cannot buy homes.  Millions of Americans who are employed are finding it increasingly difficult to make it from month to month.  The truth is that there is no way that Americans can afford the ridiculously inflated home prices that we have seen over the past decade any longer.

So, yes, the U.S. housing market is headed for a complete and total nightmare.

So what do you think?  Do you agree?  Do you disagree?  Feel free to leave a comment below….

  • daveco

    I agree with the article on most points. It is a good article and the content needs to be more mainstream which is definitly not happening.

    The first problem is jobs.

    I do not agree that there was a housing bubble in the overall market..

    I know how can I say that. The housing bubble is a lie. Just like the mortgage meltdown was the cause of the financial crisis a complete lie.

    It is always about math, engineering and a little common sense.

    The average price of a house never ever got over 3 times what it cost to build the house sooooooo there never was a housing bubble. The number of new homes never ever exceeding the number of families needing a home sooooo again no bubble. Now there may have been pockets in high density areas but over all in america there never eBver ever was a housing bubble.

    What we currently have is a housing crater were the cost of a home if you buy a foreclosure is sometimes 1/20 the cost of building and the average right now is around 1/5 the cost of building. That is a crater.

    Yes jobs is the problem.
    Yes taxes on those who create jobs are a problem.

    But the real answer is still the same. The laws we use will either create the problem or make it go away. Right now the laws we use in America favor using labor from overseas, shipping it across an ocean, costing more to ship then it would have cost to build it in America, favor corporations electing officials and writing laws to keep it that way and make it even better for using overseas labor.

    So the answer is to vote! Vote for minimum wage to be used for global trade or actually no global trade. Vote for eliminating any corporate funding of political campaigns. Vote for eliminating any corporate use what so ever in the American political system.

    Jobs will roll in.

    Housing prices will go up and those who buy now will be financially rich.

    Now is the time to buy homes they will not go down another 50%. There is no were to go but up, it just will not go up right away.

    The way to make the determination is the same way my grandfather told me. If the cost of a foreclosed home is less half what it costs to rent, you better buy, buy and buy.

    That is the way it is in most places and that is good math and common sense!

  • John

    Welcome to Communism, America. Idiots.

  • Greg

    daveco, daveco, daveco! I keep telling you that your thought that brilliant logic is going to change things is illogical. Those in control have decided to destroy our industry base to redistribute wealth around the world. They are not going to change the laws to help us solve this mess after going to all that trouble of writing them specifically to create the mess! Wake up and come to an understanding that anyone with more than a third grade education could see what was going to happen with the laws and policies that were put in place. Even Democrats and Socialists are smart enough to understand this fact. Save your logic to educate the roons who believe in the impossibilities of evolution.

  • Not so Mad Max

    Harry Dent is talking 1997 valuations I think he’s being conservative. Sad thing is if banks had the lending standards back in 2001 they have now none of this would have happned. You had dimwit flippers, and people buying houses staying in them long enough of them to go up in value sell them and move on. You had people getting home loans who had no business getting home loans and you had people using their homes are ATM’s. Now the whole thing has collapsed and is never coming back.
    What Washington needs to do leave the housing market alone and let it find a bottom. The builders wont like it, the banks wont like it, the reality types wont like it, but the alterative is much worse. If entire subdivisions have to be bulldozed so be it.

    PS some of these comments are REALLY scary.

  • gw

    Daveco, can you provide sources or show the math for the claims you made?

    I recently purchased a (bank owned) foreclosure on my parent’s behalf. It appraised for $192K and I got it for $150K. Are you saying that would cost $750K (5 X the purchase price) to build?

  • Buck Eschaton

    Who cares how much it cost to build a house, all that matters is prices relative to income. I think if prices in an area exceed 2.5 – 3 times average income you probably have a bubble. I don’t think it matters really how much it cost to build a house.

  • daveco

    Ok first it does matter how much it cost to build a house. Why because if it costs more to build a house then you can sell it for then the house will never get built because the builder will go bankrupt which is happening to a lot of builders.

    Ok all markets are different on foreclosures, in the michigan area you can have any house you want in the detroit area on foreclosure for under 40k(probably more like under 25k) and they all would cost around 200k or more to build new. Florida gulf(cape coral and the like) is around 125k for 250k- 350k and other areas I have noticed like you said about a 40% reduction in price. So yes most of America is not 1/5 the cost to build but there is no doubt that you can buy homes for less than it would cost to build or a crater not a bubble. But again it is all about jobs on house cost.

    So depending on your area you do not need my math of 1/5 all you need is to use the computer and reality track to determine your purchase price and the purchase price of a new house similar size and location, built new. Why location because locations all have different taxes and codes which require different building costs.

    Look up the price of new yourself and see how it compares to your purchase. I will bet you it will at least be 50% higher to build new. Again this is a crater not a bubble. A bubble implies the cost of building a home is x and the cost to buy by the new homeowner is greater than 3x.

    Or another analogy

    The cost of the iphone is over $200 and to build the iphone is less than $20 and I would say the iphone is a bubble and 1 year from now all will agree with that assessment.

    Yet a home which is more permanent and usefull is thought to be a bubble purchase is completely beyond me.

    And to the one comment about sheeple, yes it may be sooooo that I am a dreamer but oh well why not. I do not believe that all these problems are not on purpose but I do believe things can be changed for the better.

  • ArizonaBob

    I agree with the article in that without jobs nobody will be able to purchase a home, get a mortgage, etc. I hire and fire in the IT industry and our industry is still pretty strong. The problem we have is finding qualified candidates and eager workers. At times I find a qualified candidate who turns out to be a lazy worker, or the opposite holds true. In either case the result is the same, no work gets done by new employees OR I have to hire it done by foreigners here legally to work. Those immigrants are educated, eager and driven to succeed. The overwhelming majority of Americans I find want a Govt. job in which they can work for 3 hrs a day at substandard levels or not at all. In the end it’s this sense of entitlement that is the downfall of the American way. The divide will become greater between those that work hard, learn and grow and those that wallow in self pity and laziness.

    Educate yourself, the materials are out there. Work hard, take on impossible challenges and succeed. That made America great once and that type of hard work can do it again, but too few seem to be willing to make that happen.