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The Last Housing Crash Is Not Even Over But Bernanke Is Already Setting The Stage For The Next One

Federal Reserve Chairman Ben Bernanke is determined to push mortgage rates to record low levels and he is encouraging the banks that the Fed regulates to make home loans more freely.  Wait a second – isn’t that exactly what caused the last housing bubble?  After 9/11, the Federal Reserve slashed interest rates and this caused mortgage rates to steadily fall.  Financial institutions were urged to help “expand home ownership” in America, and many of them started making home loans to people who never, ever should have gotten home loans.  When mortgage rates started to go back up, millions of families with adjustable rate mortgages discovered that they could not make their monthly payments.  Mortgage delinquencies absolutely soared and large numbers of mortgage-backed securities suddenly turned into garbage.  So what is the Fed doing about it?  The Fed recently announced another round of quantitative easing in which it will buy 40 billion dollars worth of these mortgage-backed securities a month.  Essentially the Fed is clearing the bad financial paper out of the system and is creating the conditions for another housing bubble.  But will we really fix our problems by going back and doing the same things that got us into trouble in the first place?

The following chart shows how interest rates on 30 year conventional mortgages have declined over the past 30 years.  After 9/11, mortgage rates were pushed to ridiculously low levels and that helped create the mess that we are currently in.

So what did the Fed decide to do to fix things?  They decided to push mortgage rates even lower….

But even with mortgage rates at exceptionally low levels, new home sales in the United States continue to hover around record lows.

Does this look like a “housing recovery” to you?….

Of course we are not experiencing a housing recovery.

In order to have a housing recovery, people need to be able to afford to buy homes.

Unfortunately, median household income in the United States has declined for four years in a row, and the employment rate is currently just 0.1 percent above the lowest point that it has been at during this entire economic crisis.

And most of the new jobs that our economy is producing are low paying jobs.

As I have written about previously, only 24.6 percent of all jobs in America today are “good jobs”.

But if you don’t have a good job you can’t afford to buy a good house.

So unless Federal Reserve Chairman Ben Bernanke can somehow magically make millions of good jobs fall from the sky, the truth is that we actually need housing prices to fall so average American families can afford them.

When we push families into mortgages that they cannot afford, large numbers of them end up defaulting on those mortgages.

As the following chart shows, mortgage delinquencies continue to hover around all-time record highs.  Right now mortgage delinquencies are about 5 times higher than they were a decade ago….

So the foreclosure nightmare is far from over.  There are going to be millions and millions more families that are going to lose their homes eventually.

In fact, there are some very troubling signs that things are taking a turn for the worse….

-In the state of Illinois, the number of foreclosures is increasing again.

-In the state of New York, the number of pre-foreclosure notices has absolutely exploded over the past two years.

-In the state of California, mortgage delinquency rates are absolutely frightening.

We don’t want housing prices to rise until incomes start rising again.  We don’t want to pump up home values and then get millions more American families to agree to mortgages that they cannot handle.

We need homes to be priced at levels that American families can afford, but Bernanke seems to think that rising home prices will solve our problems.  And in some areas of the country home prices are actually rising.  We are seeing a lot of investors and foreigners come in and pay cash for homes in many of our major cities.

Meanwhile, hard working families all over America are wondering why things never seem to work out for them.

If Bernanke really wanted to fix the housing market, the following three things would help….

1) Let the free market determine housing prices.  Eventually home prices would fall to levels where people could afford them.

2) Stop manipulating mortgage rates and let the free market determine them.  Eventually they would settle at a level that is good for both consumers and financial institutions.

3) Tell banks to only make home loans to people that can afford them.

But the central planners over at the Federal Reserve are not going to do those things.  Instead they are going to keep printing money, keep manipulating interest rates and keep trying to create another housing bubble.

The mainstream media insists that QE3 is going to create more jobs, stimulate economic activity and significantly improve the housing market.

Of course the first two rounds of quantitative easing did none of those things, but somehow everyone seems to think that by doing the same thing again we will get a different result this time.

But what the first two rounds of quantitative easing did accomplish was that they padded the profits of the big banks.

And apparently QE3 is already accomplishing that.  The following is from a recent CNBC article….

Bank profits from new mortgages have soared since the Federal Reserve began its third round of bond purchases two weeks ago, fuelling the debate over the fallout of the latest dose of quantitative easing.

The extent to which QE3 drives down new mortgage rates and helps homeowners or is pocketed by banks will be crucial to the success of the policy and the prospects for growth in the U.S. and global economies next year.

The big financial institutions always seem to win, and we always seem to lose.

Isn’t it wonderful?

So once millions more American families lose their houses and most of us can’t afford to buy homes, where are we supposed to live?

Well, I have a few suggestions….

You could live in an abandoned automobile factory.

You could take over a convenience store and live there.

You could build an underground shelter and prepare for the coming financial crisis.

You could construct a tree house in the middle of a forest and get away from it all.

Does anyone else have any other suggestions?

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  • Kevin

    Is anything real anymore? Kids play virtual baseball on a computer generated graphic game while adults work for virtual money has that has no fixed value. The economic result is a virtual economy as opposed to a true supply / demand driven one. Like anything virtual it has no substance behind it any exists for practical purposes as an illusion.

    • lee

      yes, i think the world has divorced itself from reality; there’s just no explanation for the amount of debt each country has added in the past few years and the people are seemingly okay with that.

      eventually, reality will come crashing down.

    • wisefool

      The food we eat is continually becoming virtual (as in fake) as well. Mainly to do two things. Remove nutrition, and make it cheaper. It’s the human equivalent of feeding chicken crap to cattle….oh wait, that’s not until that one Japanese guy finally perfects making meat from human waste.

    • Armel

      October 4, 2012

      What Obama Knows Can Hurt Him

      I listened to Obama’s speech, the one that he gave in an African-American accent, where he was bent on portraying himself as a ‘brother,’ a ‘black,’ and a ‘minority.’ Here’s the problem I personally have with that speech, as a white person: until I heard him talk, and start to blame his circumstances or—worse yet, speak for other black people in this country and their poor circumstances—on middle class, white America, I was essentially color-blind to him. Before this particular speech, Obama appeared to me, as well as, I can only speculate, to millions of other people, a very neutral, composed, well-spoken, sometimes biased but usually fair in tone and nature, orator. However, during this speech, I saw Obama’s true color: a black man with an agenda. It was disturbing to me because, previous to this, I thought he was the President of the United States, someone I was proud of, who had, with all the odds in the world stacked against him, managed, at a very young age, to attain the highest political seat in the nation and very likely the world. Until Mr. Obama opened his mouth, and suddenly became an angry black man, I was very color-blind to him indeed. It was only after he spoke that—through sound and the collection of his words, I was able to see his true colors. I have to say that I am very, very disappointed…both as a citizen of this nation, and as someone who, in spite of my political differences from him, was deeply rooting for his success because of who he was and how seemingly far he had worked and achieved to get himself to that position.
      I also believe that millions of other white Americans feel the same way that I do. I live in Southwestern Arkansas, and when I go into a store and there is a black cashier, I don’t really see that person as black. They are very typically, hard-working, and as a white person, I think of them as one of my kind—someone similar to me, in the way they act, their mannerisms and their courtesy. I am originally from northeastern Pennsylvania, where, until very recently, there was no black population whatsoever. I was not raised around African-American children, and I did not grow up grocery shopping next to their parents in stores. I didn’t see them in movie theatres, or driving cars, or walking out on the streets. It wasn’t until I took a trip to Philadelphia as a small child that I even remember seeing a black person for the first time. I was fascinated that there were other children, my size, in this world, that were just a different color than me. Other than their color, I did not see anything different about them.
      One other occasion I remember encountering an African-American child was during a ferry ride to the Statue of Liberty when I was five years old, in 1985. My parents took me and my sister to New York City because they knew how important it was for us to understand the roots of our nation’s heritage and learn firsthand about where our freedoms came from. On the boat ride over to the island that Lady Liberty stands on, there was a small black girl. Her name was Angel, and I had some Oreo cookies that I shared with her during that boat ride. She was so outgoing, so cute and clever and I loved to see the colors in the braids that her hair was done up in. It is an image that I hold dear and will cherish as a citizen of this country. Angel was my friend during that boat ride, and we shared our cookies on the way to see the Statue of Liberty. I am very proud to relate that story. It is disappointing, however, to relate that story in the context of an essay in which I am describing my disappointment in our nation’s leader.
      Mr. Obama, I was color-blind until you opened your mouth in that speech. I very much regret ever pressing the play button on my YouTube video, and although I don’t know for a fact that I’m right, but I think many of other white and black and every other color in between Americans would feel the same way.

      A reader in SW AR

      • Michael

        I wanted to let everyone know that I taped a new interview with TruNews on Thursday.

        If you are interested, you can find the full interview right here….

        http://www.trunews.com/listen_now.htm

        Michael

        • Armel

          Beautiful words in that radio interview Michael, keep on keepin’ on! :)

          • Michael

            Thank you Armel. :)

            Micahel

        • Gay Veteran

          You write good articles, BUT you should be embarrassed to appear on that radio show with the whackjob host.

  • Gary2

    I have a suggestion: Tax the ************ rich and spread the wealth!

    • Col. Wilson

      Tax the rich like France is doing?

      France is taxing their rich at 75% and they are leaving France fast, leaving behind a more broken & dysfunctional society. Thats the problem with a global community, there is no loyalty to stay. When the rich leave, they take their businesses & jobs to other places, most of which are located in 3rd world countries.

      Unfortunately your suggestion only treats the symptom & not the problems of runaway debt, increasing welfare & worse.

      I suggest you get some emergency supplies because when the collapse comes, your not going to be able to ‘tax the rich’ because they won’t be here.

      ;)

  • Eisenkreutz

    For rich people like me, Helicopter Ben is awesome. P.S. that treehouse is one of the dumbest things I have ever seen. How did that dweeb ever hook up with such a hot *********?

  • mark

    Housing will not go into another inflation bubble unless wages go up and people are working with good paying jobs. The investment class will buy single family homes for a while and they might drive up home prices till they find out that single family homes are not good for the rental business. They have too much to maintain and the rents will not cover it in the long run. Apartments are the way to go in the rental business. Landlords that invest in single family homes are always waiting for the price to go up to make a profit.

  • FK

    There sure are a lot of empty commercial buildings these day. Most are quite roomy too. I think I will move there and call myself a “live in” security. Forget Mc-Mansion, I’ll get myself a Mc-warehouse.

  • Alyssa

    I think part of the reason they want us all to refinance is related to the MERS debacle, where people delay a forclosure for a long time (sometimes years) because the banksters cannot prove ownership of the note. The original paperwork, in some cases, no longer exists. If you refinanced in tha last few years you can bet “your papers are in order”, and your forclosure will be swift.

  • Rowell

    I purchased my home about 5 years ago. Sure it it was near the height of the market, just before the housing bubble burst. But that was okay, as the asking price was much lower than the house was worth (in my opinion), the seller was paying 2 mortgages and needed to sell this one. Most importantly, it was a price I knew I could afford for a home that I planned to spend the rest of my life in.

    I have been diligently paying my mortgage. I’ve put tens of thousands of dollars into home improvements, ranging from bathroom remodels to installing a secondary electrical system for a generator/renewable energy sources.

    According to Zillow.com and other sources, my home is worth about $10-15k less than what I paid for it. That’s fine, I don’t plan on selling it any time soon. Plus, I don’t think their estimates include the modifications I’ve made.

    With mortgage rates now dipping under 3% in some cases, I figured that now was the time to look into refinancing to pretty much cut my interest rate in half. So, I called up several lenders, gave them my information, and tried to get a better rate.

    Unfortunately, that’s where reality hits home. Each bank said that my home would have to be inspected and valued at over $60,000 its current value….over $200,000. That’s not even close to the original price I paid. And that’s despite my perfect mortgage payment history, and spotless credit.

    Anything that Ben Bernanke or the big banks say about “We’re helping the home owners” is a lie. If someone with a great record can’t refinance a home, then the system is broken.

    • Louie

      It’s not about you!! It’s about the value of the asset(your home). I know it sucks, but prices aren’t going back up by any large amount for a long time. The article is right about the crash isn’t over yet. Prices will continue to fall. The article is wrong about banks ramping up another lending binge to unqualified homeonwners when the FED will give them a nifty return on their money with no risk involved if they keep excess reserves.

  • Robert

    Try thinking of central banks as entities that destroy nations by using economics as a weapon.

    Listen carefully to the highest ranking bankers and you will eventually understand that they are lying about what they are doing. These people are not stupid. They are not ignorant. They know very well what they are doing.

    They are in the business of destroying nations.

    And they know it.

  • Kent

    Actually, we’re on the precipice of a ~ trillion dollar student loan crisis. So, the new bubble that is being discussed in this article will be the icing on the cake!

  • lee

    yes, the housing crisis is no where close to over.

    my advice to anyone thinking of buying a house now is to wait until next year and get a house at much lower prices than you would ever think of.

    i have my designated area that i’m looking for a house and i will offer 25% less than what the sales price is when i start next year. i’m going to get a lot on no’s at first, but as the people keep getting squeezed by the government actions and inactions over the past 10 years; i’m going to get a great deal eventually.

    i know that sounds cruel, but there have been a lot of financial losers since 2007 and i’ve been one of them; its time those that hadn’t prepared for whats coming take their loses.

  • Anthony

    It’s GOOD that the banks are making huge profits while the rest of the country rots. It’s VERY VERY GOOD. Banks rule. And that is very GOOD.

    And don’t you forget it.

  • http://www.survive2balive.com GA

    The Keynsian doesnt know any other way. This is all merely can kicking until they can’t kick no more. Get your house in order. Get a plan in place because the Fed and your “leaders” could care less about you. As that can gets kicked their pockets get fatter and they ain’t fixin to stop any time soon at the expense of all of us and our children’s futures. Put a plan in place to help ease the pain that is coming. Check out http://www.survive2balive.com for some basic preparedness and survival strategies.

  • Mondobeyondo

    Look out below! This plane is going down, fast!

  • Mondobeyondo

    There is no housing recovery.
    There will be no housing recovery in the near future.
    Why? There is a glut of houses already for sale.
    And they aren’t selling.
    Why are they not selling?
    Well, it takes money to buy a house.
    You can not buy a house when you are living on unemployment checks.
    Sorry, but it’s true.
    Okay, so let’s just RENT a house instead!!
    Cool! Alright…
    Average rent: ~ $1100/month
    Paycheck from job at Walmart (assuming you even have a job): $900/month
    Oops, we’ve got a serious cash flow problem here. Aw, crap.
    $200 in the hole.
    What to do, what to do?

    Lucky you! You have several options!!
    1) Sell drugs. (Not recommended in my view.)
    2) Go into prostitution (Not recommended either.)
    3) Pound the pavement in an endless search for employment
    4) Ask your landlord to feed you for the next 2 weeks
    5) Marry a millionaire. NOW. Pop the question. (Don’t worry, he’ll say yes.) Elope to Las Vegas. Like, tonight. From Los Angeles, $59 on JetBlue, one way.
    6) Beg your landlord to allow you to stay in your cramped apartment for the next 2 weeks.

  • Gay Veteran

    there is also a bubble of sub-prime car loans!

    2013 may be a HORRIBLE year

  • Mark

    I know that the housing market bubble has burst and will not have any meaningful recovery soon. I am in the process of selling my house (which is paid off) in TX. So far I have four offers and two of those offers backed out on their own volition.

    The four offers were.
    -A Cash offer in which I thought was too low.
    -A seller finance offer in which the buyer declare bankruptcy the past year.
    -Another seller finance offer in which the buyer has less than stellar credit which the buyer back out.
    -Traditional financing in which the buyer back out.

    It seems that the banks are picky on who they make the loans to. After all, why should they take the risk when they can use FED money to buy US treasuries risk free? Also they have the FED backstopping them if things goes wrong with the banks. If I went through a seller finance deal in which could go horribly wrong I can guarantee that the FED will not bail me out.

    The silver lining in the clouds when the economy does go bad at least I will have a house to live in. It is my preference to live in the house in TX because it has enough land to plant a garden for food when things go bad. Compare to the house I currently live in a major urban area with no land to grow a garden.

    The FED should no longer backstop banks which will send a clear message to banks to be picky who they make home loans to. I also agree that FED should not interfere with market fundamentals in order for the markets to effectively shed the excess supply.

  • Proftel

    Michael:

    I know people who build houses here in Brazil and live in rented houses.

    They do the following (I’ll put in “ten” for better understanding):

    1 – Acquire the ground by 10;
    2 – Build a home for 60 over 14 months – ALL houses use wood in here only support the roof, the rest is iron, concrete, bricks -;
    3 – sell the house at 130.

    Banks and finance, there are “suckers” who buy.

    I think there is not much different.

    Sorry again use “Google translation” to talk to you.

    :-)

  • Proftel

    Is there a way yes!

    Are the Laws of the Old West.

    You enter, marks, records, and if it persists five years, what is yours!

    :-)

    ************** the banks!

    hehe.

  • http://Theendoftheamericandream leonaed

    I just sold my house and I can tell all of you that it was extremely difficult for people to get a mortgage! Somebody had to come along with cash!
    Another bubble isn’t around the corner any time soon. It could happen again of course, but not so soon!

  • Pauly

    I just refinanced 56k at 3.5% and the property taxes are more than principal + interest.

  • A. S. Mathew

    ” Who fed thee in the wilderness with manna” which thy fathers knew not, that he might humble thee, that he might prove thee, to do thee
    good at thy latter end; And thou say in thine heart, My power and the might of mine hand hath
    gotten me this wealth.”

    But thou shall remember, the Lord thy God: for it is He that giveth thee power to get wealth, that HE may establish his covenant which He sware unto thy fathers as it is this day” Deut 8:16-18.

    When I was landed in the U.S. 42 years back, it got my attention that many people bowed their heads before eating food in the restaurants, but now while watching the people, it is very hard to find somebody praying before eating food. We got into an attitude that we don’t need GOD and HIS blessings and providence, so in total mess; from which we can’t escape. Dr. Billy Graham warned the whole nation to call upon GOD, but the Washington D.C.’s smart brains are trying to solve this economic crisis from what they learned in the college. No solution is coming until we all call upon GOD for HIS mercy and divine intervention. When President
    Obama cancelled the national day of prayer in the first year of his presidency, I have told to many of my personal friends and wrote comments in a few publications, that we are going to hit the worst economic crisis ahead for dishonoring the ALMIGHTY GOD.

  • Mondobeyondo

    Who was that radio reporter who covered the crash of the Hindenberg? Oh… can’t remember his name.

    “The Hindenburg is on fire! It’s crashing! It’s crashing terrible! Ladies and gentlemen, this is a tremendous catastrophe! Oh, the humanity, and all the passengers!”

    • pbrad009

      Herbert “Herb” Morrison

      “Oh the humanity!!”

  • Afi K. James

    TO HELL WITH THAT SNAKE ASS BEN BERSNAKEE!

  • Gary2

    I think ben b is really magog g

  • WarriorClass III

    Abraham Lincoln’s War Against the States ended with the enslavement of us all and left the Federal Government the final power in this country. If you doubt this you should read any of historian Thomas J. DiLorenzo’s books on Lincoln, as well as “Lincoln Uber Alles” by Emison. “The Party of Lincoln” is no better than the Marxist Democrats, and until people see through their deception, it’s not going to get any better. Another good book is “The Perils of Diversity: Immigration and Human Nature” by Byron M. Roth, and “Alien Nation: Common Sense About America’s Immigration Disaster” by Peter Brimelow.

  • Gay Veteran

    groan, you neo-confederates still complaining about Lincoln?

  • Elisabeth

    There is a big crash coming like nothing seen since the devastation of post-WWII Europe. The global economy is a paper tiger that will tear apart when stressed much further. This has been foreseen by the Mayans and the Ancient Chinese and we are about to experience it ourselves wihtin the year.
    http://www.familysurvivalcenter.com/news.htm#iching2012
    The I Ching predicts that the End of Days will be December 21, 2012 confirming what the Mayan calendar shows as well. You can’t trust governments or corporations to take care of you because they will cease to be relevant once the “change” takes place.