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The Housing Market
 I recently heard Mark Hanson, a mortgage and real estate expert, on to talk about the current market.  Here are the big things I learned:
1.  8.4 million homes in foreclosure or behind in their mortgage payments.  This is a huge number and will weigh on the market for years.
2,  New foreclosures are outnumbering home sales.  No matter what the sales numbers are, if the foreclosures are higher, the market can't go higher for long.
3.  Of the home sales, 30% are short sales or foreclosures.  This number could easily double over the next two years.
4.  About 25% of all homes owe more than the house is worth.  The housing market depends on the lower market.  People must trade up to keep things running smoothly.  To do this, an owner must be able to pay off the house, pay the realtor, and have a 10% down payment.  If this could be called "effective negative equity" then 75% of owners are upside down.   If the down payment had to be 20%, this would jump to over 90%.
5.  Housing prices will go down 5-10% a year for a minimum of 3 years.  Just as I've been saying, and it could last 10 years.
6.   Making matters worse, home buyers FICO scores have risen from 620 to 690 over the last year.  This means that all the efforts to "expand" credit are failing miserably.
7.  50-70% of loan mods fail.   As I've said before, these people are in trouble because they probably shouldn't even have houses, giving them a new loan only delays the ultimate outcome of most of these "owners" becoming renters.  This picture shows what the fate of most of these people is going to be.
The whole housing market needs to be reset, but the only way to do that is to let things play out. 
Here is a chart of mortgage resets:

I've shown many versions of this chart and this is a new version I've found. (If you want to see the other versions just click on the charts tab to left)  What you see is the various types of mortgages that will reset each month.  The higher the bar, the more people who must have their mortgage adjusted to a new rate.  In almost all cases this adjustment is up.  Looking forward, the resets have just bottomed and are now starting up.  This really starts to accelerate in May.  What does that mean?  More people who won't be able to afford their new mortgage payments which leads to more foreclosures.  After the reset occurs, it takes about 6 months for the foreclosure, so the real impact is delayed.
Here is a chart from
The main part I want you to focus on is the bottom third.  This shows the average homeownership rate in the U.S.  You can see that the long time average is about 65.5%.  However, this has been skewed up by the bubble of 1998-2006.  The real average is about 64.5%.  Right now we sit at just under 67%.  If we revert to the average, and there is no reason to think we won't, then we are about half way through the correction. 
There are a little bit more than 1.1 million houses per 1% on the chart.  This means that there are roughly 2.5 million houses that need to come out of the hands of their current owners.  They will become renters.  This long term average is not by chance, it was determined by people living as they wanted without government interference.  When the interest rates were lowered to unnatural levels, the people responded by buying houses.  The "deals" were too good to pass up. 
So this overhead of homes, not to mention the millions of homes already bank owned which haven't been put on the market yet, will keep a lid on prices and drive them down.  By the way, the banks have been trying to "manage" the housing market supply with these tactics, which has kept prices artificially up. 
Bottom line is that the housing market still has a ways to go before any meaningful price increases are seen.  Of course if hyperinflation kicks in, prices will rise, but the rise will be less than the inflation rate and you would still be losing money on a net basis.