The Housing "Rebound' Is Over

There is a ton of chatter today over “NAR Listed Inventory” levels being so low. This is a red-herring. It’s lunacy…for the life of me, I can’t understand where people get these wild haired ideas in the “new-age” housing market. Come on…really??? One house for sale could be massive supply in a market of dead people. [I love that quote]

Remember, one cannot compare today’s housing metrics with 7, 17, 27 or 57 years ago. That’s because today 50% of all mortgaged homeowners — throughout history the most influential demand cohort — are LOCKED-IN due to negative equity, “effective” negative equity, a legacy HELOC not written off preventing them from getting a mortgage, and/or insufficient income/credit needed for a mortgage loan. - Housing market consultant, Mark Hanson

I finished the final part of my 3-part housing market series with my analysis of why the housing market is about head south - quickly. In this section I focus primarily on the market for existing sales. The combination of the big mortgage rate spike in May and June, the fact that big investment funds are largely done accumulating properties they can't rent out and a few other factors have led me to conclude that the 18 month bounce in the housing market is done and the bear market will resume:

As these factors become more apparent to a wider audience, potential home buyers will postpone purchase plans, banks will pullback on mortgage funding and those looking to take advantage of the price run-up will try to sell their home before the bottom drops out of the market again. In other words, the "negative feedback cycle" that drove the popping of the original housing bubble will exert itself, taking the market ultimately to new lows.

Today's new homes sales report included a huge downward revision to the May report. No doubt that was from the effect of much higher mortgage rates. Although today's number looked good in the headlines, the revision next month will feel the full brunt of the higher mortgage rates, which hit 5% during the June contract-signing period. Through the end of Q1, homebuilders were experiencing on average 25% cancellation rates. I would bet good money that Q2 will see cancellation rates north of 30% just from higher rates.

In addition, it was reported today the use of ARM mortgages has reached the levels seen right before the housing bubble popped as the dregs of the buyers reach for homes they can't afford using dangerous ARM products. And finally, it was reported that Obama's liberalized Government-funded mortgage "restructure" program - HAMP - is seeing 50% re-default rates for the 2009 taxpayer-funded refi's. Just another one of Obama's "social welfare" programs funded by the middle class that transfers a little money to idiots and a lot of money to the banks. Thanks Barack!