People in the market to buy a house but who don't need to buy one soon have it good. They can sit back and watch housing prices head down -- all thanks to the vast number of foreclosed properties that clog the market and continue to drag down prices. Here's the latest news about the effect of foreclosures on the U.S. economy:
- AP reported on May 26 that "RealtyTrac [a company that tracks U.S. foreclosures] estimates there are 872,000 homes that have been repossessed by lenders but have yet to be sold. At the first-quarter's sales pace, it will take three years to clear the inventory of 1.9 million properties already in some stage of foreclosure."
Robert Prechter and other analysts at Elliott Wave International began warning about the housing market debacle as early as 2002. That was when most people still believed that house prices went only in one direction -- to the sky. Here's what Prechter wrote then in his book, Conquer the Crash:
"What screams 'bubble' -- giant, historic bubble -- in real estate today is the system-wide extension of massive amounts of credit to finance property purchases. As a result, a record percentage of Americans today are nominal 'homeowners' via $7.6 trillion in mortgage debt…."
That mortgage debt number grew to more than $11 trillion in 2008, according to the Federal Reserve. In the current May 2011 issue of The Elliott Wave Theorist, Prechter writes about the recent effects of the government's efforts to clean up the housing mess:
"There is no free lunch. The Fed is making new dollars, but it is backing many of them with bad debt. The government has decreed that taxpayers shall be liable for the errors of speculators, 'guaranteeing' that many bad debts will be repaid. But these are short-lived schemes. No one can thwart the economic ecology forever.
"Remember the government’s program last year to prop up the real estate market with free money via tax deductions? Well, that program is over, and real estate prices have just plunged to where they would have been anyway. Innocent taxpayers had their money given to others, so they were cheated. But the buyers of homes were screwed even worse, because they got stuck with high-priced albatrosses.
"Every government plan is short term, and each one makes things worse in the long run. When the markets start deleveraging again and the government begins to stare ruin in the face, the programs that temporarily buoyed the markets will fail, and the markets will make up for lost time on the downside." [Excerpted from the May 2011 Theorist]
As if to make Prechter's point about home prices retreating, out comes the news about the double-dip housing recession. In addition, the AP article said that "[h]omebuyers who purchased a bank-owned home in the first quarter saved an average of 35 percent versus the average price of other types of homes," according to RealtyTrac.
Overall, housing prices have dropped dramatically. The S&P/Case-Shiller index of property values in 20 cities is "down 33 percent from its July 2006 peak," reports Reuters.
Elliott Wave International began warning about the consequences of too much credit in the economy and the housing markets in the early 2000s. We kept subscribers well ahead of the housing market debacle that started in 2006 (and that still inflicts ruinous consequences both on those who purchased homes and on the U.S. economy). We'll continue to stay ahead of the economy and the financial markets. You can stay ahead, too, by starting a subscription to the Financial Forecast Service.
Want to know more about the most recent Theorist? Here's a detailed description of the contents of the May 2011 Theorist issue.