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alstry (35.16)

Death Spiral Phase

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April 17, 2008 – Comments (6)

We are now at the point in some markets that foreclosures are exceeding sales.  This is where things get really out of hand.

Banks are buyers of last resort.  If it goes back to the bank, no one wanted that property at the lowest price the seller was willing to accept.  No one wanted it at the prices the bank was willing to discount.  As a result, the house falls into the inventory of the bank.  Now banks are accumulating thousands and thousands of homes.

Banks are not emotional sellers.  They will sell the home at whatever price necessary to unload it.  If the are taking in more homes then they are selling, then you can bet their motivation to sell at a discount will increase.  As banks start discounting further, comps in the neighborhood go down.  The problem is that as comps go down, the mortgages remain the same forcing more homes into forclosure.

Pretty soon, banks may have so much inventory that will be willing to sell at almost any price just to get the property off their books.  Heck, residential land and lots is selling for pennies on the dollar right now.

Expect jobs cuts and salary reductions to drive even more homeowners into distress.  Our nation has never experienced anything close to this before......AND WE ARE JUST STARTING THE PROCESS.

In Florida, in some gated communities, one third of the homeowners are in foreclosure and not paying association dues.  The other homeowners are being forced to pick up the slack.  What do you think a home in that community will sell for under those conditions?

It's nuts folks....but the deleveraging process has begun.  Get ready for the biggest liquidation sale in the nation's history.  It will be painful but in the end we will all be better off.....maybe.

6 Comments – Post Your Own

#1) On April 17, 2008 at 2:34 PM, alstry (35.16) wrote:

MUCH MORE LAYOFFS COMING!!!!!!!

NEW YORK (MarketWatch) -- The head of Citigroup says the nation's largest bank will cut its costs across the board by up to 20%, a move almost certain to trigger big layoffs and further ravage the financial-sector employment picture, the Financial Times reported Thursday.

What do you think this is going to do for housing supply and demand?

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#2) On April 17, 2008 at 3:21 PM, EScroogeJr (< 20) wrote:

I have no compassion for banks whatsoever. As opposed to builders, who have a legitimate product to offer, banks have no place in the economy. I want all of them bancrupt, to the last one.

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#3) On April 17, 2008 at 3:43 PM, madcowmonkey (< 20) wrote:

Interesting take. So if everybody quit paying the HOA dues, would it help? How do you force the home owners to pay their dues and the foreclosed dues? Oh, yeah. You put a lien on the house until the back dues are paid. Hmmmmmm. I don't pay my dues and I figure I am going to outlast the bastard HOA's life span that I was unaware of by the time I payoff my house. Housing demand? Supply? Good questions. 

How does a bank have no place in the economy? Compassion for builders? What did I just step into.

I wouldn't mind buying up some of these properties that will be liquidated. I noticed today in reuters that somebody was taring down a mansion to put up a bigger 26 toilet mansion. How bad of a recession are we talking about? 

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#4) On April 17, 2008 at 3:51 PM, EScroogeJr (< 20) wrote:

"How does a bank have no place in the economy?"

Simple. Banks are producing housing inflation, and we don't need that product. 

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#5) On April 17, 2008 at 3:54 PM, alstry (35.16) wrote:

Regardless of whether you like this or that, where are we going to be this summer when hundreds thousands of people are not working and students can't go to college because they can't get loans?

Getting money is getting harder and harder.  If you can't get money you can't spend.

If Citi is going to cut spending by 20%, that is billions of dollars that won't be spent on IT workers.  That is an enormous hit to the economy because those workers can't go to Bear Stearns because they are losing half their workers.

The problem now is when a person loses a job, there is no easy replacement for the job loss.  Incomes are crashing in America everyday.  As house prices keep falling, so is wealth.

Right now, the only thing keeping America out of a depression is the stock market.

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#6) On April 18, 2008 at 4:40 PM, madcowmonkey (< 20) wrote:

EbernankeJr- The builders didn't stop buying land and building homes when they had too many sitting already. This is pure deranged thinking when you have no compassion for banks yet you have it for the builders. Sorry, but they offer a product that we have plenty of, in fact too much.

 

alstry- "If you can't get money you can't spend." Shouldn't this be if you can't make money you can't spend. House prices are falling, because they were do. Will they go back up someday. Maybe? The only thing keeping america out of the depression is something I don't have a legitimate answer for. Job loss is a big issue, incomes are a big issue, but the market keeping us afloat? Doubt it. I am not sure what else to say, but most likely no one will read it. I will leave you with this one thought. I don't see anybody in America fighting/rioting for food. People in other countries are hoarding rice and rioting like there is no other way. The only logical explanation for this is that we have the resources to pull it out, we just need people to actually get back to a job that should be in the US instead of overseas. With more jobs comes more incomes comes more people able to pay for services and products. Forget the housing bubble/boom don't worry about the market and >>>>> the banks. Lets create jobs in the agricultural, pharmaceutical, IT, and other areas so that we can keep living beyond our means for the next century or two. How ever long you think Ebernanke and alstry feel we have.

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