The Housing Bubble

And housing prices falling…

Fairfax, VA Housing Prices Dive 17%
http://www.movoto.com/fairfax-va/market-trends/

So why don’t you move to Hotlanta? Or is some cushy job keeping you put?

The market is going up because the market is going up because the market is going up …

This will continue until it stops, then the market will go down and it will continue to go down because it continues to go down.

Think Price equals Value and it will all make sense (sort of).

I think it depends on your definition of shadow inventory, which could be:

1. Homes that absolutely will hit the market for sale, potentially impacting the number of listings relative to demand in the short term–impacting (potentially temporarily) sale prices of homes.

2. Are empty homes that are being held off the market that are empty…these when they come back to the market could impact (more permanently) both sale prices and rental rates.

To answer your question:

1. Trapped debtors add to category #1. When they leave the house, they will find another place to live (rental most typically). Musical Chairs. I see this as shadow inventory that even when it comes to market will only impact the market temporarily (not net new housing units becoming available).

2. Empty Investment housing is category #2. Actual new supply that could impact both prices (if they are put onto the market) or rents (when they add to rental inventory).

3. Limbo housing is definitely category #2.

Your Limbo Housing is what they call “Zombie Foreclosures”, empty houses that are stuck in the foreclosure process. Realty Trac has a website here that outlines where they think these are located (and how many of them there are):

http://www.realtytrac.com/content/news-and-opinion/monsters-of-the-housing-market-vampire-reos-and-zombie-foreclosures-7892

Trapped debtors I think really fit into the category of 90+ day delinquencies over some baseline level. You can see these numbers in a variety of places…the three that I look at most often:

LPS mortgage monitor
NY Fed Household Credit Report
Corelogic Foreclosure Report

The big question is what the baseline is…I think it’s probably about 2%-2.5% (this is from the NY Fed report that shows the 90+ day delinquencies from 2003-2006–it ain’t getting better than that). I think the US as a whole is at 5%, so 2.5%-3% of all mortgages fit into this category, if I were to guess.

Empty Investment Housing is probably best approximated by the Census:

https://www.census.gov/housing/hvs/data/histtabs.html

Look at table 8 here. The category that matters the most are vacant homes that are held off the market “for other reasons”. Like the 90+ day delinquencies, there is a baseline of approximately 1.5%-2% of all housing stock (1.5% was common in the 60’s, 2% more recently). If you pick 1.75% as the baseline (to be conservative since more recent decades have been closer to 2%), today about 2.8% of homes fall into this category, or an excess of “Normal” of about 1.5 million homes.

There is some overlap with the other categories however. Per the Census, this category includes vacant:
Foreclosures
Legal Proceedings
Preparing to rent/sell (your category)
Needs repairs
Currently being renovated
Abandoned

By the way, one further point.

I expect that the “baseline” level of serious delinquency/foreclosure will be somewhat elevated as long as the number of underwater homes is elevated.

Why?

If you are above water, a solution to tough times is simply to sell the house and pay off the debt.

If you are underwater, that option doesn’t exist.

As compared to “normal” times (with fewer underwater borrowers) this means that more homes than “normal” will go through the foreclosure/short sale process.

Realtors tell us there is a shortage of houses. Over a couple of decades of mania we built tens of millions of houses above “normal”. The prices of houses doubled from “normal” and so did the debt associated with them. Ironically, the size of these houses kept getting bigger and bigger. Wages have been sideways and we have ten million fewer people in the workforce.

This big fat possum is way out on a fragile Persimmon limb.

Markets
Bitcoin Report Rattles Currency’s World
Newsweek Purports to Identify Bitcoin Creator
By Tamara Audi, Robin Sidel and Michael J. Casey
Updated March 7, 2014 12:44 a.m. ET
The media outside the home of the man said to have created bitcoin. Emily Berl for The Wall Street Journal

On Thursday, a virtual currency created a real-world circus.

Shortly after 6 a.m. in New York, Newsweek posted an article purporting to shed light on the identity of the creator of bitcoin, the digital currency that has grown from a niche hobby into an $8 billion phenomenon in the past year. If true, the article would have solved one of the biggest mysteries in the business world.

Dorian Prentice Satoshi Nakamoto, the man named as Bitcoin’s creator, has denied he is the man behind the controversial virtual currency. Michael Casey discusses what it means for the bitcoin community at large. Photo: AP.

The article identified Dorian Prentice Satoshi Nakamoto as the probable inventor behind bitcoin, although this couldn’t be independently verified by The Wall Street Journal.

Later Thursday, the Associated Press reported that in a two-hour interview, Mr. Nakomoto denied he had anything to do with the currency.

Newsweek’s report shot through the community of investors and traders who have helped build the market for bitcoin. Fans of the currency were distressed that the anonymous creator may have been outed. Some investors expressed relief. Regulators said they were hopeful they might finally get to the bottom of the confounding virtual currency that had exploded into the real world, finding its way into everyday retail transactions as well as more sinister activities such as money laundering.

The report also sent a cadre of reporters to Mr. Nakamoto’s home near Los Angeles, a two-story pinkish-beige home that sat quiet, with its curtains drawn, as neighbors gathered.

But a few hours later, a man who looked like the person Newsweek had identified as Mr. Nakamoto exited the house, approached the gathered journalists and said he was hoping to get a free “expensive” lunch. When one reporter offered to buy him a meal at a sushi restaurant, the two pushed through the scrum, got into the reporter’s car and took off. But not before the man told reporters: “I have nothing to do with this.”
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