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Will 2011 Be A Nightmarish Year For The U.S. Housing Market?

As we come to the end of 2010, there seems to be very few reasons to be optimistic about the U.S. housing market as we enter 2011.  Home prices have fallen for several months in a row, mortgage rates are going up, mortgage delinquencies are increasing again, the mortgage industry is mired in horrific legal problems and the underlying economy is still extremely sluggish.  During 2009 and throughout the first half of 2010 the U.S. housing market experienced a time of stabilization and it looked like the housing industry might recover, but when the tax breaks expired things started to get bad once again.  Now many analysts are publicly using the term “double-dip” when speaking about prospects for the U.S. housing market in 2011.

For example, economist Nouriel Roubini recently told CNBC that the “double-dip” is already here….

“It’s pretty clear the housing market has already double dipped.”

David Blitzer, the chairman of the committee that releases the Standard & Poor/Case-Shiller home price index, believes that it has not happened yet but is warning that a housing “double-dip is almost here”.

Standard & Poor’s analysts are projecting that U.S. home prices will decline between seven and ten percent in 2011.

A ten percent drop in housing prices during 2011 would be absolutely devastating for the U.S. economy.  It would send mortgage defaults and foreclosures soaring once again.

So just why is everyone so pessimistic about the U.S. housing market?

Well, for one thing, mortgage rates are going up.  Home sales have been extremely poor even with mortgage rates near record lows for much of 2010, so what is going to happen if mortgage rates keep rising throughout 2011?

In addition, U.S. mortgage lenders have really, really tightened up lending standards.  This has made it much more difficult to get a home loan in America.  If less people can qualify for a home loan that means that there are a lot fewer qualified buyers than there used to be.  There doesn’t seem to be any reason to believe that mortgage lenders are going to return to the freewheeling way that they once did business in 2011.  In fact, it seems likely instead that they are going to be even more careful about who they lend to in the year ahead.

Meanwhile, housing prices continue to go down.

Many analysts have been troubled by the fact that U.S. home sales are extremely low right now and that this has been pushing housing prices down.  The Case Shiller Composite-20 Index declined one percent during the September/October time period.  Home prices fell in every single metropolitan area examined by the survey, and this was the third consecutive month that prices have fallen.

David Blitzer sounded very pessimistic when he declared that there “is no good news in October’s report”.  According to Blitzer, the U.S. housing market has deteriorated significantly over the last 12 months and that “on a year-over-year basis, sales are down more than 25 percent and the month’s supply of unsold homes is about 50 percent above where it was during the same months of last year.”

Ouch.

Many analysts are talking about the expiration of the federal home buyer tax credit back in May as a key turning point.  What that tax credit did was take “future demand” for housing and move it into the period when the tax credit was active.  Now that there is no more tax credit there isn’t anything to artificially boost demand for housing.  Economist Nouriel Roubini noted this phenomenon during a recent interview with CNBC….

“If you look at the data, Case Shiller has been falling every month since the tax credit expired in May. Everyone who wanted to buy a home did so by April.”

Unfortunately things look like they are only going to get worse.

As we move into 2011, the legal problems that the U.S. housing market is embroiled in will continue to put downward pressure on housing prices.

The number of housing and mortgage related lawsuits across the United States has been dramatically increasing.  More homeowners than ever are challenging their foreclosures and are demanding that those seeking to foreclose on them actually produce the paperwork that shows that they own the mortgage.  This is causing a lot of chaos out there.

Adam Levitin, a Georgetown University Law professor who specializes in mortgage finance and financial regulatory issues recently was quoted in an article on CNBC as saying the following about the situation the U.S. mortgage industry is currently facing….

The mortgage is still owed, but there’s going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you’re stealing my money. You’re going to then have trusts that don’t have any assets that have been issuing securities that say they’re backed by a whole bunch of assets, and you’re going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they’re going to do, and you’re going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

What a mess! It is going to take many years (if not decades) to sort through all of the legal wrangling that this foreclosure crisis is causing.

Meanwhile, mortgage delinquencies are increasing again.  Freddie Mac recently reported that the “serious delinquency rate” increased from 3.82 percent in October to 3.85 percent in November.  Mortgages are considered to be “seriously delinquent” if at least three monthly payments have been missed.  A rise in serious delinquencies means that we could see another spike in foreclosures in 2011.

So could home prices fall ten percent or more next year?

If so, what would that mean?

Well, Roubini says that even a five percent decline in home prices would push another 8 million U.S. homeowners into negative equity and that would likely mean even more “strategic defaults“….

“Thus even a 5% fall in home price will push an extra 8 million in negative equity with risk of millions walking away from their home—i.e. jingle mail.”

Unfortunately, there doesn’t seem to be much chance that the U.S. housing market will turn around as long as unemployment remains as high as it is right now.  As 2007 began, there were just over 1 million Americans that had been unemployed for half a year or longer.  Today, there are over 6 million Americans that have been unemployed for half a year or longer.

Not only that, as we enter 2011 there are at least 1.5 million “99ers” – American workers that have completely exhausted all of their long-term unemployment benefits and that still do not have jobs.

If Americans don’t have good jobs they can’t buy good homes.

Sadly, our good jobs are being shipped overseas at an alarming pace.  Americans have been merged into a global labor pool where they have to compete with slave labor on the other side of the globe.  Big global corporations know this and they are finding that they can make much bigger profits by getting rid of “expensive” Americans workers and by giving their jobs to those who will work for slave labor wages.

So instead of buying good homes, many hard working Americans have been forced to set up tents in the woods.

The U.S. government has been attempting to prop up the economy with wild borrowing, but that cannot last forever.  The U.S. national debt is rapidly approaching 14 trillion dollars and the rest of the world is getting really tired of lending obscene amounts of money to us.

Meanwhile, there are hundreds of state and local government financial disasters happening all across the United States.  Analysts fear that we could see a huge wave of municipal bond defaults in 2011.  The federal government could attempt to bail out all of the state and local governments, but the truth is that the federal government is already nearly insolvent.

Another thing that could send the U.S. economy into the tank in 2011 is the price of oil.  As I wrote about yesterday, there are a whole bunch of indications that the price of oil will soar well past 100 dollars a barrel in 2011.  If that happens it is going to be disastrous for the U.S. economic “recovery”.

So is 2011 going to be a nightmarish year for the U.S. housing market?

Yes.

Any questions?

  • No

    You are an idiot. This is not going to happen but thanks for scaring people. Even if it does it will recover next year.

  • mondobeyondo

    As a popular female political public figure would say, “You betcha!”

    Housing prices are going to hit the floor, then crash through the basement.

    As long as the economy languishes in the mire, the housing market will suffer. You can’t qualify for a housing loan with a job at Wendy’s. Well back in 2005 you could, perhaps. But certainly not these days.

    No good job = no mortgage loan = no house for you.
    No houses for many people = housing demand goes down.
    Demand goes down – prices go down, and down, and down.
    What a downer!

  • VegasBob

    There is no driver for jobs. Employers are looking to fire American workers, not hire American workers. The employer saves the cost of wages, payroll taxes, worker’s comp insurance and medical benefits, while paying wages to foreign slave labor of 10 or 20 cents on the dollar with no benefits.

    So there is no ability for people to buy homes, and there won’t be any ability for everyday Americans to buy homes any time soon.

    The saddest group will be the Boomers. Boomers who think they are going to retire off the illusory profits from selling their overvalued McMansions are really going to have a harsh awakening call. They are either going to file bankruptcy to offload their dream homes onto the bank, or they are going to liquidate their meager retirement accounts to pay off their mortgage deficiencies.

    When they have bought a 25K condo in Florida or Arizona, they will be sending half of their monthly Social Security checks to the power company just to keep their air conditioning going. That’s what Boomer retirement is going to look like, and it ain’t going to be pretty.

  • William

    WOW! The Smirking Chimp and war criminal Bush really did a number on America. Yet, there are fools who continue to defend the fool to this day. Remember that when Clinton left office, the US budget had been in balance or surplus for four years, unemployment was normal, and housing had not crashed. After eight years of the Smirking Chimp, Obummer was handed a mess. However, Obummer, Reid and Pelosi, being incompetent phonies, have done little to right the ship of state. Batten down the hatches…..2011 will be rough….the stimulus money runs out and the nation is bankrupt.

  • http://www.grandmasdepressionmemories.com/ Leigh Kimmel

    One thing that a lot of people are overlooking is ever-expanding automation via robotics. We talk about jobs disappearing overseas, but not all jobs are being taken by other humans. As Moore’s Law gives us ever-better, ever-cheaper microprocessors and microcontrollers, more and more jobs are being handed over to robots, who don’t slack, don’t talk back, and don’t have to take breaks.

    American workers have become so unfit at least in part because even “manual” labor has increasingly become a matter of guiding a machine. Instead of the worker using their muscles to provide the power, an electric or gas motor provides power and the worker just provides executive function. But now even the executive function doesn’t require a human, other than the programmer who codes the microcontrollers in the robot. Or more likely, the whole line of robots that does the job in companies across the country.

  • Sharoma

    A rise in interest rates seems to be, apart from simply churning out more bank notes, the only course of action open to the “Fed” to encourage the buying of treasury bonds.
    Surely such a rise would lead to even more mortgage defaults, since it would increase the payment amount required?

  • Aurelius 7

    Anyone who continues to play right-left politics is a blithering idiot.They’re all the same. Republican have turned socialist (“progressives”) while Democrats are full-blown Marxists. Don’t like it? Vote Republican and go socialist-lite. Don’t like the Republicans? Vote in the left-wing batsh*t crazy radicals.

    Get the picture? You live in an OLIGARCHY. Do you people get it?

    “You say to yourself: “What can I do?” Nothing, because you don’t live in a participatory Democracy. That’s the absolute truth. You’ve had your fun. You went to the polls in November — and that was your fun. That was what you’re allowed. Every two years you’re allowed to have your fun and think that you have some impact among these thieves and criminals, but you don’t. You change the window dressing. So now you went from Democrats crowing with over-sized hammers to Republicans in pink ties who are crying. But they’re still raping us. You mean nothing to them… You put in Scott Brown and everyone celebrates. Then you wake up and he’s voting with Olympia Snowe.”

    – Michael Savage

    • Skully

      Best post yet! The illusion of choice, or control, is a reality in this country. The sooner people realize this, the better off they will be,and then they can finally start thinking clearly, and seeing things as they are. There are things like republic and democrat to keep us preoccupied, and away from the real truth of the situation.

  • http://www.facebook.com/home.php#!/profile.php?id=100000847348611 Jill

    I was laid off for over 7 months in 2009 and went through my credit cards, 401(k) and savings stupidly paying my mortgage and other bills ontime until I was broke.

    When I went to the bank to ask for reduced or deferred payments until I could get a job, they refused to work with me. Finally I was able to get work again in this year, but I stopped paying my mortgage and cc bills for several months. I should have stopped as soon as I was laid off last year and saved all of my savings for food and expenses.

    Now, I am getting back on track with my mortgage and other bills, but in the back of my mind, I keep thinking about what if I get laid off again.

    You know what, the only thing that really matters is food. I’ve started storing and caching short-term and long-term food for the next emergency, be it natural or economic.

    Check out:
    http://www.familysurvivalcenter.com/fwb.htm

    The system just can’t be counted on anymore. Can you believe I even owe the IRS now for $6,000 in back taxes because I raided my 401(k) to pay my bills and feed myself.

    Never again!

  • William

    Dear “NO” How do you know??? Why such a rude comment???? You must be on some special drug to think the market will recover next year. I was a Realtor for past 6 years, and from what I see, we are in a big mess. Don’t expect thing to recover quickly

  • screwed

    Double dip? My home, which I paid 290k for in 2003, has dropped to 200k. So much for my deposit, which was YEARS of hard work.

    I have to sell it because the jobs in the area disappeared. The feds closed down a local military base killing the job and housing market.

    The home went up to 330k in 2007. Now it is worked over 130k less. WTF? How does the economy get this mismanaged. Personally, I think this was done a purpose. The banks now hold real assets while fiat banking systems melts down (fractional banking will always melt down).

    As George Carlin said, to believe in the American dream, you have to be asleep to believe it.

    Now, my life’s saving is gone, my family is split and I needed to relocated for work.

    I don’t understand why the American people don’t get pissed as everything is give to the banks.

    I am a veteran and fought against the Communists for years, only to have the people who I was defending **** me.

  • http://www.mortgageresistanceofamerica.com FrankyFreelance

    “Looks like I picked the wrong week to stop sniffin’ glue!” — “Airplane” (the movie)

    Interesting points made above.

    The situation is a real mess and is only going to get worse.

    As I gravitate towards an scientific, objective, international economic perspective I will respond specifically to one comment made by “Leigh Kimmel” above.

    Interesting point LK. My only rebuttle for you is the question :

    “If robotics has taken over a significant amount of the manufacturing and/or service sector work from humans, then why is there still a migration of jobs to the third world? After all, along with exporting our manufacturing base (and thus jobs) to China IN ADDITION TO the technology which makes that manufacturing possible – wouldn’t we also see the same process going on there? If not, why not?”

    Join the Resistance!

    http://www.mortgageresistanceofamerica.com

  • zack

    Whether in 2011 or 2012, eventually interest rates are going to have to rise. The government’s effort to keep rates down is akin to trying to submerge an inflated beach ball. When rates do rise, expect the already soft housing market to fall apart completely.

    Our company Path to Asia http://www.pathtoasia.com/jobs/ helps Americans move to Asia for jobs and prosperity. Visit our site for details.

  • A Dodgy Bloke

    I’m afraid I’m with Aurelius 7 on this one, and if you think things are okey dokey, keep thinking that up to the time the waves sweep you out to sea.

  • Javik

    It’s all very simple. Americans have lived high on the hog for decades, and it is high time we learn to live in the poverty that 3rd world people deal with every day.

    Can’t afford health insurance? No problem, the poor in China can’t afford it either. They are surviving anyway, and so can we.

    Can’t afford a $250,000+ house? No problem, trailer homes are serviceable, and you can get a nice manufactured house for 1/5th the cost of stick-built.

    Are you “unemployed” and don’t have a good paying job? Hey, neither do the subsistence farmers around the globe that make less than $1 a day, yet they are surviving anyway. Learn how to grow your own food, buy a plot of farmland, plop down a trailer, and start learning self-sufficiency and how to grow your own “victory garden”.

    Many Americans are on the verge of being forced way down the socioeconomic totem pole, to live on income levels closer to what 3rd world people have to deal with every day.

  • Tina

    Very good article.

    They cut my hours today. Not good. But I’ll make it cuz I’ve been preparing for this for two years.

  • David

    Every year I have to pay extra 4k to 5k tax. I am renting and still wait for the price to come down to the reasonable level to buy. Why in the world, the stupid guys in the White House keeps giving money to banks and losers that mess up our economy? WTF is our corrupt stupid government doing? Get them out of there. Get some one have common sense in there.