Why the Worst is Yet to Come.

[OHBOY]

"DeadManCrawling": I really appreciate being able to read your well written report, find it very stimulating and most interesting pertaining to your thoughts on the defaults in the FL housing market in connection with how the banks are making their books look good. THANK YOU (!) for all the time spent to compile the details.

As it probably is just an error,I hope I don't come across as 'nitpicking', but please allow me clarify that the credit for 'move-up/repeat home buyers' is not $8000 (as for first time buyers). It is however 'up to' $ 6500.

https://www.federalhousingtaxcredit.com/faq2.php

[DeadManCrawling]

You are correct. I, and many folks, tend to use the 8k figure since it has been so prominent in the news. The actual figure is, in fact, $6,500 for people purchasing another home.

Good catch, I definitely did not intend to confuse anyone.

Best,

-dmc

[banca rotta]

One question I have pertaining to this post "Why the worst is yet to come" and that is are any of you having difficulties discussing these types of issues with others such as friends, family, etc.?

It seems in residential, commercial real estate as well as all the other problems with debt, public and private that the worst has no choice but to come.

There are so many folks that we cannot even discuss these matters with since it looks like we are just negative and selling them fear. The problems are so bad that if all 6 billion people on the earth "think positive" it still won't make a dent.

Even when we watch some business related news on TV there are those that predicted the coming real estate and stock market crash 4 to 5 years ago and not only were they laughed at then, but even now they are being ridiculed for predicting a much worse crash.

I guess the way things will play out is we will witness the biggest transfer of wealth from those not paying attention (or thinking positive) to those that are making prudent descisions.

I wouldn't give anyone any investment advice but I have to say those that are paying attention (and do some research on what's coming) will probably profit more from the crash and those that put their faith in "green shoots" and the "obama recovery" will certainly get burned.

[DeadManCrawling]

Remarkably, there seems to be a consensus agreeing with this view, among my circle of friends and family. I suppose we may look like a bunch of "end of the world" wackos to outsiders, if we did not know them previously, but I really don't feel like a wacko.

Today seems a far cry from the survivalist movements of the 70's and 80's and the militia movements of the 90's.

There also seems to be a consensus among the population in general that something has gone horribly wrong. There are constant outcries to "DO SOMETHING!!". The problem is, no one knows quite WHAT to do. We voted, as a nation, for "change" and voted, it seems, based on that one word without requiring further definition. Now, I voted for Obama, and have never felt loyalty to either party or any particular candidate. However, I felt a bit hamstrung. It was either vote for "change", undefined as it was, or vote for the same. I knew the same was NOT going to help. So there was not much choice, in my mind.

It feels an awful lot like Obama and his government had no actual plans for AFTER winning. The goal, initially, was to GET ELECTED. "Then we'll sort it all out and make the changes". Problem is, they are as clueless as the rest of us. Seems we voted for a change . . in faces. . . but the same sorts of policies and responses.

I shuddered when Bush doled out hundreds of billions into the hands of Wall Street. I shuddered MORE when Obama took office and did the same.

At any rate, it seems we all know there is major trouble coming, but no one knows what to do. We moved to a smaller home in the country, will have a garden and chickens, on our half acre. I am researching and preparing to buy weapons, for the first time. I am a die-hard peace-lover but not everyone is, and if the worst happens, I have a duty to my family.

I look at it this way: If I am dead wrong (and I hope to God I am), then we will all be in better shape from the work, be more self-sufficient, be saving money on food, eating better food, and have saved money in nearly every aspect of our lives. It also is teaching myself and my family about nature, food, necessities versus desires, and so on. Invaluable learning for my 16 year old son.

If the rest of the world disagrees with our way of life, that is okay with me. If a crash of that magnitude happens, I would rather be prepared than not.

[banca rotta]

I'm at least glad you have people to talk to on this. I don't outside this forum. I just look too gloomy and no one wants to listen.

Since we are so used to not having anything like this you can rest assure that's why it will happen and so many will not be prepared for when it does, rich or poor.

The funny part about "do something" is if we just wouldn't do something (we meaning the govt), there would have been more forclosures, more bk's, higher unemployment, the DOW 3000.

The good news however is we would probably be in recovery right now and grow our way out of the mess.

Homes, cars, stocks, fuel, food would be cheaper which would help those misfortunate and investors would swoop in and buy up property, struggling businesses, etc.

The govt bailouts, home buyer tax credits, cash for clunkers, stimulus just put the govt deeper in debt and when it all runs out in 6 months we will witness a much greater disaster.

Hope I'm wrong too but I feel I am not.

[OHBOY]

What have we learned in 2065 years ?

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
- Cicero, 55 BC

[JRScott]

Great quote OHBOY

[bulletproof77]

I really have to agree with DMC's original post. You could take the Florida scenario and directly apply it to Southern California and Nevada. Here in the West, the "shadow inventory" is tremendous..Realtor s and brokers are in the newspapers constantly complaining about the banks sitting on these properties. Are the banks THAT clueless that they believe the "boom times" will return ? No, I agree that we are not even close to the bottom of the housing market..I do think that strategic foreclosures will increase greatly in the next few years as people realize that there will be no real appreciation in their home's value and wish to conserve cash. I know in my own case, I faced my foreclosure with an initial sense of failure and sadness. Now I realize it was one of my better "business" decisions.

[JRScott]

North Carolina has a lot of shadow inventory too

[Tom_Mi]

Ok, so let's play this thing out...

Foreclosures go nuts this year and Real Estate values reset to crazy-low numbers. Banks lose/write off gazillions.

For those of us with 20% cash to put down on a place, will a bank be able to lend me the money?

[momisery]

tom, if you have another 20% to put down, or 10% if your wealthy. Or you could go for FHA and come in with less down. But if you have filed a BK it will take a couple years before you will be buying or refing much of anything. Some banks are working out deals with existing clients who are paying on their homes, but I do not think those deals are very good in most cases. Normally they are a sort of ARM, for a short time frame they will accept less, but once incomes go up they will want more. This means that every time your ahead you will not be again until you reach your maximum payment again.

My concerns were the health of my husband and knowing without him I could not pay for a house so I would be paying only to lose it. And I would not be able to sell it for what I had to pay for it so I could be held accountable for that debt and could not file a BK again for years. We are hoping to move close to family, getting out of MO, so letting it go made the best sense. We don't have to try to sell it now, which it will never sell for what we owe and realtor fees..

[DeadManCrawling]

If this plays out large enough, I fear we may have a presidential or congressional order stopping ALL foreclosures and evictions. To give the government "Time to rectify the mess". Then, look out. Sounds good on the face of it, but that would be a large signal that the worst really IS yet to come, and could spell the end of our economy as a whole. I hope not, but if enough people get angry enough over housing, in general, and masses of people walk away simultaneously, I can't see any other solution.

What then? Massive write-downs of principal? Probably. Again, sounds good, but those banks will not be shut out. I can see a new class of government bond. The Housing 2010 Bond Class, set to mature in, say, 10-15-20 year increments. Let's kick the problem a little FURTHER down the road, shall we? And just in time to look good for election year.

Good grief, Charlie Brown!

Best,

-dmc

[banca rotta]

If this plays out large enough, I fear we may have a presidential or congressional order stopping ALL foreclosures and evictions. To give the government "Time to rectify the mess". Then, look out. Sounds good on the face of it, but that would be a large signal that the worst really IS yet to come, and could spell the end of our economy as a whole. I hope not, but if enough people get angry enough over housing, in general, and masses of people walk away simultaneously, I can't see any other solution.

What then? Massive write-downs of principal? Probably. Again, sounds good, but those banks will not be shut out. I can see a new class of government bond. The Housing 2010 Bond Class, set to mature in, say, 10-15-20 year increments. Let's kick the problem a little FURTHER down the road, shall we? And just in time to look good for election year.
Good grief, Charlie Brown!

Best,

-dmc

That's the whole problem with any fix. They cannot kick this down the road any further if they wanted to at least by issuing anymore bonds.

Smart investors know that Uncle Sam will either default on the debt or devalue the currency and the suckers that bought the bonds will have lunch money at best once they mature.

The game is over! Very few seem to realize this. I think by this time next year millions more will see this.

[momisery]

The only way to stop this is to bring good paying jobs back. They are so concerned with shipping jobs overseas to build up other economies and give corporation huge profits and they are not watching what it is doing to our country. if you are going to take all the jobs away you will have to retrain everyone. I read today there are jobs, but not skilled people to fill them. Years ago they use to train you and I think they still could, they just don't want too.

[backtoschool]

That's the whole problem with any fix. They cannot kick this down the road any further if they wanted to at least by issuing anymore bonds.

Smart investors know that Uncle Sam will either default on the debt or devalue the currency and the suckers that bought the bonds will have lunch money at best once they mature.

The game is over! Very few seem to realize this. I think by this time next year millions more will see this.

I totally agree that the government will simply devalue the currency to remove the debt. This is already happening, the plummeting value of the dollar is no accident. It is our way of eliminating our debt to China.