“Inquiring minds are really trying to keep a certain…decorum. Gallows laughter comes so easy. But this is just such low hanging fruit!”
Doesn’t it seem as if it were only yesterday that Ben Bernanke was saying on this very page in “Bernanke vs. Roubini“:
Bernanke: It doesn’t seem likely that we’ll have a double dip recession. And that’s because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can’t get much weaker.[SC editor’s bolding] And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that’s the primary source of risk that we might have another slowdown in the economy.
Wow! That is quick even for ol’ Brainy Ben. Zillow just released a report saying U.S. home values are poised to drop cumulatively more than $1.7 trillion this year thanks to rising foreclosures and the expiration of home buyer tax credits. Along with this year’s decline added to 2009’s losses of just a little more than the $1.05 trillion; the total loss of home values (since the June 2006 home-price peak) is about $9 trillion.
On top of that:
The drop in home values pushed more buyers underwater, meaning they owe more on their mortgages than their homes are worth, Zillow said. The percentage of homeowners with so-called negative equity reached 23.2 percent in the third quarter, up from 21.8 percent at the end of 2009.
“With foreclosures near an all-time high in late 2010 and high rates of negative equity persisting, it does not appear that the first part of 2011 will bring much relief,” Stan Humphries, Zillow’s chief economist, said in the statement. “Government incentives can only temporarily hold back the tide.”
In other news yesterday, home mortgage rates jumped to a five month high. This may not seem like much but higher rates mean higher payments meaning a higher monthly cost of owning a home.
The average rate for a 30-year fixed loan increased to 4.61 percent in the week ended today from 4.46 percent, the fourth week of gains, Freddie Mac said in a statement. The average 15- year rate climbed to 3.96 percent from 3.81 percent, according to the McLean, Virginia-based mortgage-finance company.
The agreement to extend tax cuts sent yields on mortgage- bond securities to six-month highs yesterday on speculation that the budget deficit may widen and inflation will accelerate. Rising borrowing costs from record-low levels may spur some prospective homebuyers to make purchases to lock in low rates, said Paul Dales, U.S. economist at Capital Economics Ltd.
“Once people see this might actually be the bottom, they go for it,” Dales said in a telephone interview from Toronto.
Surviving California prediction: If mortgage rates do go higher, then:
1) home sales will increase
2) Obama’s Admin and others will say, “Real Estate is back!”
3) home sales increase is only temporary and will drop back past where they stood before rates went up
4) Obama and the others will be silent
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