Nightmare in Housing, From Worse to Worse

“Profit Confidential” Column, by Michael Lombardi, CFP, MBA

I guess they were wrong again.

What I’m talking about is all that positive news we heard last month about the U.S. real estate market getting better. There was a little good news and the media was quick to come out and say that we had hit the bottom and the property market was turning around.

Hold on, is what I said in my “only fools rush into this market” article in November. I wrote about how we shouldn’t take the price strengthening in 20 major American cities as an indication of better times ahead for the housing market. I continue to believe it will be a long haul ahead for the U.S. real estate market.

Well, yesterday, my feelings were confirmed, as several major negative reports on housing were released. Here they are:

  • According to RealtyTrac, 2009 will go down as the worst year ever for foreclosure filings. A total of 3.9 million foreclosure notices were sent out in the U.S. this year, up 22% from 2008.
  • U.S. foreclosure filings surpassed the 300,000 mark in November for the ninth consecutive month.
  • According to the Treasury Department, President Obama’s “foreclosure prevention plan” has modified only 31,000 mortgages, or five percent of eligible loans.
  • The worst-hit states for foreclosures have been Nevada and Florida. In November, one in 119 households received a foreclosure filing notice in Nevada, one in 165 households in Florida.

The housing market is still very sick in the United States. It’s like a bad fever that just won’t go away. Until we get rid of all the inventory of homes the banks have foreclosed on, house prices cannot rise. Unfortunately, the inventory of foreclosed homes continues to rise, as 300,000 new foreclosure notices a month go out.

Michael’s Personal Notes:

Below, you will read that the stock market continues to rise in spite of the fears most analysts and economists have about the economy. If there ever was a classic bear market trap, we are witnessing it every passing day that the stock market moves higher. How long willit last? Another week, another month, into the first quarter? It will
last until the pessimists have turned optimists. And that could take time.

There is one number, one reality we cannot escape. Since the recession technically started in December 2007, over seven million Americans have lost their jobs. We have just witnessed the greatest loss of American jobs post World War II. It’s logical and all related: How can the home foreclosure proceedings stop in the U.S. with so many people having lost their jobs?

Where the Market Stands:

The Dow Jones Industrial Average starts this morning up 18.5% for the year. Despite the gloom and doom, despite the 12-year low the stock market hit in March, 2009 looks like it will go down as a great year for owning stocks.

Most of what I read and hear today is still pessimistic. Yes, the economy is getting better and the job losses have been trimmed, but negativity reigns. Most of what I hear now is concern over the ballooning government debt, fear of a free-fall in the U.S. dollar, fear of inflation, and worries about monetary tightening ahead.

Until the “talk” turns bullish — and I think that could happen in the first quarter of 2010 — stocks will continue riding the “wall of worry.”

What He Said:

“When property prices start coming down in North America, it won’t be a pretty sight, because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It’s only a matter of logic, reality and time.” Michael Lombardi in PROFIT CONFIDENTIAL, June 23, 2005. Michael started warning about the crisis looming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.