Back during the previous bubble the “Real Estate Bust” breaking news section at DollarCollapse rocked: Tons of fresh links with apocalyptic titles and lots of fish-in-a-barrel ideas for shorting the banks and home builders.
Then the action fizzled. Home prices and sales stabilized, and housing seemed destined to bump along for a while, playing little or no role in the burgeoning government bond bubble.
Wrong. The housing bust is back. Where six months ago the headlines were a mixed bag of generally boring stories, today they’re all about plunging prices and anemic sales. Some representative headlines:
New home sales rise, but signal no recovery yet
Home sales slump is widespread
Illinois plans to blow $100 million in troubled mortgage relief program
Foreclosure flood may not have crested yet
As lenders hold homes in foreclosure, sales are hurt
Priciest homes languish in Greenwich, Connecticut
Stunning 360 degree images of abandoned property sites
Here’s why this matters: According to the census bureau, there are about 76 million owner-occupied dwellings in the US, with a median value of about $163,000. That’s about $12 trillion tied up in our homes. And after popping in 2010, the median price is falling again:
A drop of about $20,000 per home, times 76 million units, equals about $1.3 trillion of lost home equity in a little over a year. If the median price drops by this much again by the end of 2012 — pretty reasonable given the momentum of this chart and the facts that 1) state and local governments are just beginning the cuts everyone knows are coming, and 2) the federal government is trying to dial back its unprecedented levels of money creation — the result is a couple trillion sliced out of an economy that needs several trillion dollars of new credit each year just to keep going.
But the larger impact is psychological, because declining home prices push ever-more mortgages under water. One recent study put the number of US mortgage holders who owe more than the value of their house at 11 million, or 23% of the total. So both classes of homeowners have a problem. Those with paid-off homes are losing money on one of their biggest investments. And those with mortgages are seeing what little equity they had wiped out, and in a growing number of cases replaced with negative equity. They’re digging themselves into a hole just by living in their house.
This is uncomfortable, and in a society driven by consumer spending, homeowner discomfort translates to fewer people eating out, buying cars and taking vacations. The frivolity-based economy withers.
Recent macro statistics bear this out, with last quarter’s GDP growth rate down sequentially and most analysts predicting more weakness in the year ahead. And there’s absolutely nothing on the horizon to turn the ship around, since housing is slowing during the heyday of quantitative easing, with Washington running trillion-dollar deficits and the Fed buying up this debt with newly-created currency.
With housing falling and government stimulus shrinking, all the macro pressure would seem to be on the downside. Which means a weak economy going into a presidential election year, something that is virtually never tolerated by the folks with the printing press. So…yet another data point in favor of QE3 or some other big liquification event — and another reason to load up on gold and silver in the very near future.