Friday, November 5, 2010


My new house
You should see my house
My new house
You should see my new house
According to the postman
It's like the bleeding Bank of England
My new house
Could easily crack a mortal in it
-- The Fall

So, the National Realtors Association released a housing report(tx calculated risk) today stating:
The Pending Home Sales Index,* a forward-looking indicator, slipped 1.8 percent to 80.9 based on contracts signed in September from an upwardly revised 82.4 in August. However, the index remains 24.9 percent below a surge to 107.8 in September 2009 when first-time buyers were jumping into the market to take advantage of the initial deadline for the tax credit last November.
Whatever other number you want to look at about the economy, housing remains key. Housing was the center of the bubble and it continues to deflate, and from every historical precedent, it's going to continue to deflate, no matter how many times Mr. Bernanke presses ctrl-alt-shift-$. Currently 25% of people are underwater in their mortgages, and estimates of 40% within two years. Which means all the losses the banks are hiding are going to only grow larger. Now remember, the whole housing bubble was created to, literally, paper over the great imbalances in the American economy that had developed over several decades, most significantly, the stagnation of wages. Which is also why all the cries of dumping ever greater amounts fiscal stimulus into the economy without a serious look at correcting these imbalances is just as much crack-pipe policy as they're smoking at the Fed.

We should stop the foreclosures, write down the mortgages so people can stay in their houses, and make the banks and bondholders take the losses, breaking up and recapitalizing where necessary. That ain't going to happen, which is why if you think 2010 was bad for incumbent elected officials, you ain't seen nothing yet.

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