THE PONZI SCHEME EQUITY VANISHES
About $7 trillion
has been taken from the wealth account of property owners.
130
million housing units in the US – owners
have lost an average of
$54,000.
Homeowners were the
victims of this PONZI SCHEME.
NEGATIVE EQUITY – THE NEXT REALITY CHECK
How many homeowners would be better
off financially by walking away from their mortgage?
THIS IS THE QUESTION MANY WILL ASK
THEMSELVES AND THEN THEY WILL
WALK AWAY.
Payment
performance on mortgages is terrible and getting worse. More than 4% of
mortgages
are in foreclosure. More than 13% of
mortgages (ONE IN EIGHT) are behind.
This “Low Debt” and “High Debt” chart of approximately the
last 60 years shows that the magnitude
of
debt, whether it be corporate or household, could be far beyond reasonable. If
we are in the hang over
of a world-record credit bubble, then the
outlook for real estate investment is negative.
The
best research into credit bubbles says that property’s value will fall through the summer of 2012 –
until
three years from now. The good news is that the fall in values has nearly
equaled the average fall
of
35%. The bad news? What if we have a King-Kong credit bubble and it’s actually
not stupid to say
“It’s
different this time.”?
The
graph shows half of all mortgages
issued in 2006 have a balance greater than the value of the house
securing
the loan. What will happen to loan performance if 50% of all mortgages are
worth more than
their
collateral? Deutsche Bank issued a
report in early August saying that 48% of all mortgages would be
worth
more than their collateral by 2011.
Property values could fall 60%! Prices have already fallen 30%. When values
fall according to the
estimates
in this graph, it is a certainty that banks and financial companies will fail
en masse. A bandaid
is all we’ve done so far. These banks need a
tourniquet, heart surgery and years of rehab.
The
Wall Street Journal recently reported that two-thirds of sales are a form of
distressed sale (Improving
Home
Sales Belie Market Reality, 8/21/09). “‘Think about that for a minute,’
John Mauldin of Millennium
Wave
Advisors wrote this week. ‘Two-thirds of home sales are either foreclosures or
banks taking a loss
on
the mortgage.’ And only a third of the
remaining one-third — roughly 10% of overall sales — comes
from
‘something we could call a normal selling process.’”
NEW
VS USED: A wide gap has opened up between sales of new homes and existing
homes.
The
trend began in 2006 and remains elevated.
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