The bursting of the Housing Bubble in 2007 that signaled the lead-in to the overall stock market collapse and credit crisis was quantified by two key technical points. First, home prices were far above their actual values, with bidding wars causing prices to escalate for even the most run down shack. And second, a large portion of home buyers near the end were sub-prime mortgage borrowers who couldn’t afford the monthly payments once the economy collapsed, and job losses escalated during the recession.
So using these two parameters, it is fair to say that the Fed’s mission of re-inflating the housing market has been a success, and any artificially stimulated bubble has only one sure outcome.
“Housing inventory declined from last year and supply in many markets is very tight, which in turn is leading to bidding wars, faster price growth and properties selling at a quicker pace,” says Yun. “To put it in perspective, roughly 40 percent of properties sold last month went at or above asking price, the highest since NAR began tracking this monthly data in December 2012.” – Zerohedge
Bidding wars and escalating prices make up one of the two indicators of an oncoming collapse. The second of course is the use of sub-prime loans as banks and lenders reach out to those who can ill afford to purchase a home when their regular market dries up.
Any loosening of credit standards could boost housing demand from borrowers who have been forced to sit out the recovery in home prices in the past couple of years, but could also stoke fears that U.S. lenders will make the same mistakes that had triggered the crisis.
So far few other big banks seem poised to follow Wells Fargo’s lead, but some smaller companies outside the banking system, such as Citadel Servicing Corp, are already ramping up their subprime lending. To avoid the taint associated with the word “subprime,” lenders are calling their loans “another chance mortgages” or “alternative mortgage programs.” – Reuters
Yet there is another unique thing going on in the housing market, and it involves more than just the government’s push for more home ownership. As the dollar becomes more of a stigma than a safe haven of wealth for foreign investors and business moguls, many oligarchs and high income billionaires are using real estate in the U.S. to both dump their dollars, and to launder their money into hard assets. The Chinese in particular are doing this, and over the course of the past five years have acquired close to 60% of the commercial real estate in the borough of Manhattan.
The tightness of the housing market is a facade unto itself because many banks who hold millions of foreclosed properties are keeping them off the markets in what are termed ‘shadow inventories’. This process is meant to force up the prices after 2007 by limiting demand, and creating an environment where they can attempt to profit from the losses taken when the industry collapsed. Yet with consumers and home buyers themselves not truly recovering since the Great Recession of just a few years ago, the setup is now in place for a Housing bubble collapse of even greater proportions, just at a time when the rest of the economy is teetering on its own unstable foundations.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.