David Stockman reports:
So far we have experienced 7 million foreclosures. Beyond that there are still 9 million homeowners seriously underwater on their mortgages and there are millions more who are stranded in place because they don’t have enough positive equity to cover transactions costs and more stringent down payment requirements.
And that’s before the next down-turn in housing prices—a development which will show-up any day. In fact, another downward plunge is a positive certainty now that the buy-to-rent LBO speculators are rapidly pulling out of those “flash” bull markets in Arizona, California, Los Vegas, Florida and elsewhere. The latter were merely short-lived price eruptions which were an artifact of the Fed’s free money policies.
Yet even as Wall Street heads out of Dodge City the normal wave of organic buyers is nowhere to be seen. That’s because the inexorable normalization of interest rates is already beginning to drive housing affordability even further south among the diminishing cohort of buy-to-occupy households with sufficient income to meet today’s financing standards.
Among the latter, incomes are stagnant in real terms and have been so for a decade. In the absence of real income gains, therefore, the “affordable” price of housing is essentially an inverse function of the cost of leveraged carry. As the latter goes up, the former goes down.
There's more:
none of this carnage was inexorable or necessary. In fact, a housing bubble of the fantastic magnitude that unfolded during the Greenspan era could not occur on the free market. The 3X gain in housing prices between 1994 and 2007 was entirely an artifact of the massive outpouring of cheap mortgage debt that occurred during that period. The latter, in turn, is a consequence of the Fed’s financial repression policies—–maneuvers that disable and paralyze market interest rates and thereby enable runaway speculations fueled by virtually unlimited cheap debt.
In a free market in housing: lenders demand collateral - somewhere in the neighborhood of 50% down. Barack Obama and Nancy Pelosi don't much like the strict regulation of risk a free market puts on debtors.
