August 25, 2010

The Impact of the Housing Crash on Wealth and Retirement

The Plundering of America

March 7, 2010

Bullion Bulls Canada - ... While roughly 10 million American homeowners have already lost their homes to the Oligarchs, this doesn't come close to meeting their “target.” Ideally, they would like all of the little people to lose their homes. Taking a quote from “The Bankers Manifesto of 1892”:
When through the process of law, the common people have lost their homes, they will be more tractable and easily governed through the influence of the strong arm of government, applied to a central power of imperial wealth under the control of the leading financiers [i.e. the banksters].
Thus, the “game plan” of the Wall Street Oligarchs was written well over a century ago; however, it has taken all this time for the Oligarchs to gain such complete control over the “levers of power” that they are now in a position to achieve their dreams. Quite simply, they want to steal the homes of every American, while the iron-fist of a Fascist government keeps the masses from rising up against them ...

Millions of already-foreclosed homes have been held off of the market, allowing the propaganda-machine to pretend that housing inventories are only half as large as they really are, which in turn, has allowed some momentary price stability. This is totally a mirage.

With the U.S. economy still plummeting downward (putting aside the totally fictional “GDP” numbers of the U.S. government), job losses are about to re-accelerate, interest rates can only go higher, millions of hopelessly-insolvent “option-ARM” mortgages are about to reset, and retiring baby-boomers need to dump trillions of dollars of real estate onto the market (to partially compensate for a $3 trillion short-fall in their pensions and their own lack of savings).

And, at some point, the millions of homes which the Oligarchs have hidden from the market will show up in inventories. Indicating that this second “crash” has now begun, recent figures for the sale of both new and existing homes have shown a sudden collapse [see stories below].

There is a real “war” taking place today: an economic war, which has been instigated by the ultra-wealthy, prosecuted by the U.S. government, and directed at the American people. Having already robbed Americans of their political power through the establishment of the Wall Street-owned, two-party dictatorship, the Oligarchs now want to rob the people of their last vestiges of “economic power” -- in order to turn Americans into “serfs,” which they consider to be the only rightful place for the “little people.”

New Home Sales Decline to Record Low in July

August 25, 2010

CalculatedRisk - The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 276 thousand. This is an decrease from the record low of 315 thousand in June (revised down from 330 thousand).

New Home Sales Monthly Not Seasonally Adjusted Click on graph for larger image in new window.

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

Note the Red columns for 2010. In July 2010, 25 thousand new homes were sold (NSA). This is a new record low for July.

The previous record low for the month of July was 31 thousand in 1982; the record high was 117 thousand in July 2005.

New Home Sales and Recessions The second graph shows New Home Sales vs. recessions for the last 47 years.

Sales of new single-family houses in July 2010 were at a seasonally adjusted annual rate of 276,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.4 percent (±10.8%) below the revised June rate of 315,000 and is 32.4 percent (±8.7%) below the July 2009 estimate of 408,000.
And another long term graph - this one for New Home Months of Supply.

New Home Months of Supply and RecessionsMonths of supply increased to 9.1 in July from 8.0 in June. The all time record was 12.4 months of supply in January 2009. This is still very high (less than 6 months supply is normal).
The seasonally adjusted estimate of new houses for sale at the end of July was 210,000. This represents a supply of 9.1 months at the current sales rate.
New Home Sales Inventory The final graph shows new home inventory.

The 276 thousand annual sales rate for July is the all time record low (May was revised up a little). This was another very weak report. New home sales are important for the economy and jobs - and this indicates that residential investment will be a sharp drag on GDP in Q3.

Existing Home Sales Dive to 15-year Low

August 24, 2010

Reuters – Sales of previously owned U.S. homes took a record drop in July to their lowest pace in 15 years, suggesting further loss of momentum in the economic recovery.

As the National Association of Realtors issued the report, Chicago Federal Reserve President Charles Evans warned that the risk of a double-dip recession was higher than six months ago although he did not think output would contract, describing the recovery as ongoing but modest.

Existing home sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest since May 1995. June's sales pace was revised down to a 5.26 million-unit pace from a previously reported 5.37 million.

Analysts polled by Reuters had expected sales to fall 12 percent to a 4.70 million-unit rate last month.
"This is a worrisome report and while it reflects the volatility caused by the end of the (government home-buyer) tax credits, it also indicates a deterioration in the underlying trend for housing demand," said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch in New York.

"For the overall economy, the dangerous link to housing is home prices and this report signifies that home prices should fall considerably faster, which could tip the economy back into a recession. We are, however, not quite there yet but this is a worrisome report."
U.S. stocks added to losses on the report, while prices for safe-haven government debt extended gains. The U.S. dollar fell against the yen and euro.

The housing market has been mired in weakness following the end of a homebuyer tax credit in April, which pulled forward sales and building activity.

The surprisingly weak home sales data added to signs that the economy was rapidly losing strength, even though the drop may have been exaggerated by the end of a popular housing tax credit. Stubbornly high unemployment has burdened recovery from the longest and deepest recession since the Great Depression.

The government on Friday is expected to revise down growth in second-quarter gross domestic product to an annual pace of 1.4 percent from 2.4 percent, according to a Reuters survey.

The recovery which started in the second half of 2009 has largely been driven by government stimulus and manufacturing as businesses replenish depleted inventories.

With home sales tumbling, the inventory of previously owned homes for sale rose 2.5 percent to 3.98 million units from June, representing a supply of 12.5 months -- the highest since at least 1999 and up from June's 8.9 months.

The jump in the supply of homes was almost double the six to seven months' supply considered to be a healthy level.

Last month foreclosed properties accounted for 22 percent of sales while short sales made up 10 percent. First-time buyers accounted for 38 percent of transactions, the lowest in 12 months.

The national median home price rose 0.7 percent from July last year to $182,600.

The Impact of the Housing Crash on Family Wealth

Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005. After adjusting for inflation, values will never catch up. - Housing Fades as a Means to Build Wealth, Analysts Say, The New York Times, August 22, 2010

Originally Published in July 2008

Center for Economic and Policy Research - This paper extrapolates from data from the 2004 Survey of Consumer Finance to project household wealth, by age cohort and wealth quintile, in 2009 under three alternative scenarios.
  1. The first scenario assumes that real house prices fall no further than their level as of March 2008.

  2. The second scenario assumes that real house prices fall an additional 10 percent for a 2009 average.

  3. The third scenario assumes that real house prices fall an additional 20 percent for a 2009 average. (Real house prices are currently falling at the rate of almost 2.0 percent a month.)
The projections show that as a result of the collapse of the housing bubble, families in all age cohorts will see a substantial reduction in their wealth compared to the levels for the same age cohort in 2001 or 2004, the years in which the last two surveys were fielded.

In percentage terms, the sharpest falloffs are projected to occur for the youngest families. In the second scenario, the median family in the age cohort from 18-34 will have 67.6 percent less in net worth in 2009 than in 2004. The median family in the 35-44 age cohort will have 56.8 percent less in 2009 than in 2004. This corresponds to a decline of $41,000 in median wealth.

The typical family in the age cohort from 45 to 54 will have 34.6 percent less in 2009 than did families in the same age group in 2004. The median family in the 55-64 age cohort will have $121,000 less wealth than their counterparts in this age group in 2004, a decline of 43.9 percent.

The projections show that the crash of the housing bubble is likely to eliminate most, if not all, of the gains that families had made in accumulating wealth over the last two decades. The median family in the cohorts from age 35-44 is actually projected to have less wealth in 2009 than their counterpart in this age group in 1989. The median family in the cohort from ages 45-54 is projected to have 31.2 percent less wealth in 2009 than the median family in this age cohort in 1989.

The sharp projected reduction in wealth compared to the prior two years in which the survey was fielded stems from the collapse of the housing bubble. Homes are the major financial asset held by the bulk of the population. It was inevitable that the sharp downturn in the housing market that we have seen over the last two years would have a substantial impact on the wealth of most families.

As these projections should demonstrate, homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth.

Net Worth and Financial Wealth Distribution in the U.S. in 2007

Wealth Distribution By Type of Asset, 2007: Other Assets

How the Housing Crash Hurts Your Retirement

Originally Published on September 2, 2008

Professor Piggington - ... The housing bubble had another perverse effect on our planning: It led us to save less. "Many people thought, 'I'm wealthier, I already have a big chunk of my nest egg thanks to my house, so I don't have to save as much,' " says Moody's chief economist Mark Zandi.

Using asset gains as an excuse to cut back on saving can be dangerous, especially when those gains come during a period of unprecedented returns. Bloated asset values can be illusory -- and temporary. So even if your retirement accounts balloon during your career, keep making contributions. If nothing else, you'll give yourself a wider safety margin to deal with setbacks.

Many homeowners exacerbated the damage done by falling prices by borrowing heavily from their homes. Federal Reserve economist James Kennedy estimates that from 2002 through 2007 owners pulled $2.5 trillion in equity out of their homes via cash-out refinancings and home-equity loans ...

Government-sponsored speculation and the housing market crash
The housing bubble and the financial crisis
States Budgets Blow as Housing And Credit Markets Crash
Household Wealth in Freefall
The Housing Crash and the Retirement Prospects of Late Baby Boomers
Housing crash will leave millions of homeowners dependent on Social Security in retirement
Boomers, Housing and Retirement: A Symbiotic Relationship Unravels

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