U.S. Housing Sector and Economic ‘Recoveries’ Nothing but Mirages

While the supposed good news is that existing home sales have spiked to an annualized rate of just over 6 million units the bad news is that one in seven U.S. ‘homeowners’ with a mortgage are either delinquent on their mortgage payments, or already in the foreclosure process. Thus, we are presented with data that more people are buying homes in the U.S. but less people are paying for them. Surely it is evident to even the most obtuse market-observer that it is irrelevant how many people are buying homes if they can’t afford to make the mortgage payments. By: Jeff Nielson; www.bullionbullscanada.com; Words: 923

The U.S. housing market has gone from bubble-and-bust to a game of “musical chairs,” where title to properties flips back and forth from ‘homeowners’ to financial institutions – with the ‘homeowners’ unable to make payments on their homes (while they hold title), and the banks refusing to write down these “assets” once they take possession (and this is called a “recovery”).

Even with all the mortgage-modification schemes of the various housing band-aids, five out of six homeowners who become delinquent on their mortgage eventually suffer foreclosure. Even with this new spike in sales, with only 30% of properties sold being distressed properties, this would work out to only 1.8 million distressed units being sold in an entire year.

Foreclosures alone exceeded that amount in just the last six months – and this leaves out all the repossessions and short sales, which amount to well over 1 million units per year, by themselves. What this means is that even with the increased sales, unsold inventories of homes continue to soar, while the foreclosure pipeline continues to increase in size.

Thus, in the real world, the massive overhang of inventory continues to grow, and is currently at its highest level ever. Official inventory statistics which pretend that inventories are falling are nothing but exercises in wishful thinking – where the publisher of such numbers must make a conscious effort to avoid noticing the massive, actual inventories.

Those who would like to believe the propagandists are presented with this contradiction. The same talking-heads who now regularly compare the current U.S. economic collapse to the Great Depression are trying to tell people that the Great Recession ended after less than two years. This supposed recovery comes with the U.S. economy now totally dependent upon consumption – whereas during the (first) Great Depression, the United States had the world’s largest and most-productive manufacturing sector.

During the Great Depression it would have been plausible for the economy to recover even if employment, housing and consumer spending were all still in decline (as they are in the United States, today). However, the current U.S. economy is built entirely atop a housing-bubble, and a level of consumption which can only be maintained by ever-increasing consumer debt.

In the real world, net monthly job losses are still well over 1 million per month, and consumer credit is plunging downward – the first time this has occurred in the last 40 years. In other words, for the first time since the U.S. became a consumption-dependent economy, consumer credit is falling.

It was only through borrowing trillions of dollars in temporary equity that the U.S. economy was able to move out of the dot.com bubble – and straight into the housing bubble. Yet with no access to more credit, and steadily plunging employment income, we are supposed to believe that the U.S. economy has emerged from a far worse downturn than that previous burst-bubble.

U.S. consumers got into their current, sorry state through ‘buying’ things which they couldn’t pay for. The U.S. economy, as a whole, has gotten into its current state of hopeless insolvency through ‘buying’ things which it had no intention of paying for (some would simply call this ’stealing’).

Yet, if we are to believe the propagandists, the U.S. economy is currently being rescued through consumers buying even more goods for which they cannot possibly make payment. If this contradiction with simple, common sense doesn’t make people automatically reject the nonsense of a U.S. economic recovery, then consider this: at the same point where people are being refused additional credit on their credit cards (and in many cases having their limits unilaterally reduced by U.S. banks), they are being approved for mortgages.

Virtually all these new mortgages ultimately flow through the U.S. government, which has simply created a brand new (government-funded) subprime sector – except this time U.S. taxpayers are explicitly subsidizing the massive losses. Given this reality, increasing existing home sales mean nothing more than a guarantee of more, massive waves of foreclosures in the future (with the losses to be paid for by the children of those creating these losses).

Sadly, Americans apparently have still not learned the lesson that buying things, but not paying for them cannot possibly be the basis for a solvent economy, let alone a healthy one. Clearly, the next down-leg in the U.S. housing market is a necessary element for the economic education of the United States.

As has been apparent since the U.S. housing crash began, that second down-leg will begin no later than this spring – when the next spike in mortgage-resets occurs (a spike which will last for at least two years).

Those who continue to allow themselves to be seduced with fraudulent statistics and specious talk of a recovery are destined for a very rude awakening in 2010.

Editor’s Note: The above article is an abridged and enhanced (where appropriate) version of the original. The author’s views and conclusions are unaltered. Lorimer Wilson (editor@MunKnee.com)

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