Housing Crash Part 2 -- A Massive Second Wave Of Mortgages Reset Starting In 2022 The housing crash of 2008/2009 was one of the biggest financial disasters in American history. Approximately 6 million homes have been foreclosed on by lenders as millions of American families watched their hopes for achieving the American Dream go up in smoke. Since early 2008, approximately 60 million U.S. homes have lost a combined 5 trillion dollars in value. It has been an unmitigated disaster for homeowners, lenders, home builders, real estate agents and construction workers. Now approximately one out of every four U.S. homeowners are underwater on their mortgages. That means that they owe more money than their homes are worth. If that wasn’t bad enough, it is estimated that by september of this year approximately 5.1 million American homeowners will own a home valued below 75 percent of what is owed. Can you imagine owing $400,000 on a home that is only worth $300,000? That is where millions of American families find themselves now. In some areas of the U.S., the housing market is so bad that it is almost comical. In California, one bank demolished 16 nearly completed homes because it was cheaper to knock them down than to finish building them. The worst part is that by all indications, the housing crash is far from over. In fact, a massive second wave of mortgage defaults is on the way over the next three years that could potentially deliver a knock out blow to the U.S. economy. Over the next two years alone, approximately 360,000 home loans are scheduled to reset nationwide. When these loans do reset, the mortgage payments will increase by an average of $1,000 per month. Can you afford a $1,000 increase to your mortgage payment? This is the kind of thing that we saw during the first wave of mortgage defaults in 2007 and 2008. That first wave of foreclosures was one of the primary causes of the biggest financial crisis in recent American history. Now a second wave of mortgage defaults in on the way and there is simply no way that it is going to be able to be avoided. A huge mountain of mortgages is scheduled to reset starting in 2022, and once those mortgage payments increase substantially there are once again going to be millions of Americans who simply cannot pay their mortgages. Welcome back to The Atlantis Report. You are here for your daily dose of the truth, the whole truth, and nothing but the truth. Please take a second to hit the like button, hit the subscribe button, and don't forget to also hit the notification bell. Thank You. Even before the pandemic pushed the U.S. housing market into overdrive, the price of the average American home was on a rocket ride, climbing more than 50% between 2012 and 2019. It was the third biggest housing boom in American history. Then came the pandemic, marked by a buying frenzy and a selling freeze, which created a supply-demand mismatch that made the price boom go into warp speed. The average price of American homes, in real terms, is now the highest it's ever been — even higher than the peak of the housing bubble in 2006 before it crashed 60% and bottomed out in 2012. 340,000 home mortgages resetting on top of 5+ million homes that are more than 25% underwater. The potential for default on those 5+ million homes is enormous. If I owe $300,000 on a home that is now worth $225,000, even if I could sell my home I have to come up with an additional $80,000+ (closing costs, lawyers, transfer taxes and principle) to get out from under the train wreck. One can rebuild one's credit in 3 years. It is cheaper in most cases to walk away from the existing loans, or ask the bank to forgive the difference. What the media do not mention is the looming crisis in commercial real estate. 80% of commercial loans are resetting in 2021. Given that rental rates in many areas are depressed, the income produced from such properties and coupled by high vacancy rates are making it impossible for owners to refinance. In many cases, they too, have negative equity. Add to the mix the fact that the Fed is now monetizing debt since no one wants to buy US treasuries, and the bankruptcy of nation states and individual US states, I don't see any way to avoid a collapse of the current system. The future looks grim. Housing will be worth cents on the dollar in the upcoming hyperinflation. Economists define bubbles as when the prices of assets — such as stocks and houses — depart from their fundamentals. Fundamentals are what an asset is actually worth. A house's fundamental value includes things such as its proximity to good-paying jobs; whether it's in a locale with a nice climate or fun things to do; whether the school district is good; whether it has desirable characteristics, such as good square footage and an architectural style that's in vogue. Importantly, the fundamental value of a house is determined by the supply and demand for houses in a given area: If it's desirable to live in that area and there aren't enough homes for incoming residents, the fundamental value of each house will rise. There's been a decades-long economic debate over if and why manias cause homes to depart from their fundamentals. One side believes that homebuyers and sellers are rational, effectively processing information about home fundamentals before they buy or sell. They believe housing bubbles are rare, or even impossible. The other side believes that quirks of human psychology lead homebuyers and sellers to misjudge the fundamental value of homes, leading to bubbles and crashes. Millions of Americans remain out of work. The US economy continues to languish, burdened by government lockdowns and other pandemic-related factors. Retail sales have dropped precipitously over the last several months, underscoring the economic malaise. So, how is it that the housing market is booming? It’s a tale of two housing markets. Even with some 17 million Americans behind on their mortgage or rent payments, home sales remain brisk. Real estate agents say in some areas, houses sell the same day they’re listed. On the surface, it doesn’t make a whole lot of sense. But then again, neither does a stock market hitting record highs. And in fact, both are booming for the exact same reason – Federal Reserve policy. The markets don’t really care about economic data or political drama. As long as the monetary heroin keeps flowing, the bubbles will keep growing – until they pop. The Fed’s extraordinary monetary policy keeps interest rates artificially low and this spills over into the housing market. Mortgage rates have dropped to record lows in recent months. Another factor that is stoking the red hot housing market in many states and it is also a function of government policy. It’s a lack of liability for mortgage lenders. All of this has created an artificial housing market boom that could soon rival the 2007 bubble. What clear-eyed mortgage underwriter would sign on to a thirty-year loan at less than 3 percent? After all, in Las Vegas, for instance, the unemployment rate was 11.5 percent, the second-highest in the country. The city’s main engine, tourism, has been stymied by covid. But, as if there were nothing wrong, nothing to see, or no risks to consider, new home sales are on the verge of being the highest in 2020 since the historic housing-boom year of 2007. “Heading into the final month of 2021, the housing market in Southern Nevada continues to impress and defy normal seasonal trends,” Smith wrote in the Home Builders Research monthly report cited by Eli Segall in the Las Vegas Review-Journal. “Despite the continuing uncertainty of the pandemic, low interest rates and low inventory have kept both new and resale homes moving at unprecedented levels for this time of year.” Realtors I know are swamped. They’ve never been so busy, despite mask-wearing and virtual showings. The resale market set another record (that’s six months in a row) for the highest median price, $345,000. “On the construction side,” Segall writes, “development plans have ramped up. Builders pulled nearly 10,400 new-home permits this year through November, up 6.6 percent from the same 11-month period last year.” While 9 million jobs were lost nationwide in November, as Wolf Richter perfectly describes the situation, the housing market has gone crazy in many parts of the country—a phenomenon of the Pandemic stimulus extend-and-pretend forbearance free-money foreclosure-ban economy…from February—and that this crazy housing market couldn’t last has become apparent to everyone months ago. On the finance end, Mark Cabana, head of US rates strategy for BofA Securities, told the Financial Times’s John Dizard: “There is going to be a train wreck at the front end of the Treasury curve next year (2021). There is way too much cash chasing too little paper.” Meaning, as Dizard writes, “Given what we know today about the US government’s likely spending over the next several months and its cash on hand, it is possible, even likely, that Treasury bill rates will be negative for a significant period of time.” What’s this mean for mortgage rates, typically priced off the Treasury curve? Credit Suisse strategist Zoltan Pozsar told the Financial Times: “Yes, a bill shortage would radiate out the curve, to the two-year and three-year, out to the belly. If on top of that there is a flight to quality, it would exacerbate that move.” Referring to Dizard’s the Financial Times piece in a series of tweets just after Christmas, Bank analyst Chris Whalen said, “With 30-year conventional mortgage rates closing in on 2.5% APR and the FOMC [Federal Open Market Committee] buying 1.5% MBS coupons as part of quantitative easing, this is a good time to take cash off the table in IMBs and REITs [real estate investment trusts], and go buy a well-located residential home.” Perhaps the rush to buy homes makes sense. And then there is this: “Total inventory for sale at the end of November declined to 1.28 million homes, down 22% from November last year, for a supply at the current rate of sales of 2.3 months, an all-time low,” Wolf Richter points out. While some cities are losing population and housing inventory is increasing, nationwide housing inventory is slim pickings. Private lenders aren’t driving this home purchase–palooza. Fannie Mae, Freddie Mac, and the FHA (Federal Housing Authority) guaranteed $7 trillion in mortgage paper as of 2019, which was “33 percent more than before the housing crisis,” the Washington Post reported. The taxpayer is backstopping more credit risk than ever. The Post reported that nearly 30 percent of the loans Fannie Mae guaranteed were to borrowers whose house payment exceeded half of their monthly income, up from 14 percent in 2016. “At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier,” Damian Paletta reported for the Post. In a dozen states, mortgage loans are non-recourse, meaning that if the owner defaults the lender can only foreclose on the collateral; the rest of the borrower’s assets cannot be pursued. After the crash of 2008, Nevada changed its laws and is now a nonrecourse state in some situations. The twelve nonrecourse states, per financialsamurai.com: Alaska. Arizona . California. Connecticut. Idaho. Minnesota. North Carolina. North Dakota. Oregon. Texas. Utah. Washington. It’s no wonder some of these states are the fastest growing in the country. This was The Atlantis Report. Please Like. Share. Leave me a comment. Subscribe. And please take some time to subscribe to my backup channels, I do upload videos there too. You'll find the links in the description box. You will also find a PayPal link if you want to make a donation. Thank you wholeheartedly to all those of you who have already donated. Stay safe, sane, and healthy friends!
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