Mounting foreclosures are depressing home values and discouraging buyers who don't want to make a deal if they believe prices have further to fall. The S&P/Case-Shiller index of home values in 20 cities fell 1.6 percent in November from a year earlier, the biggest 12-month decrease since December 2009, data released last month showed."
Home prices have declined longer and gone lower as a percentage than in the last Great Depression.
"The flow of homes into foreclosure remains extremely high," said Zach Pandl, an economist at Nomura Securities International Inc. in New York. "The housing market is in very poor shape."
Guess who is holding all of that bad paper? The number of homes in foreclosure rose in December to a record 2.2 million. The Federal Reserve described the U.S. real estate market as "depressed" in a Jan. 26 statement. These mortgage backed securities that Mr. Bernanke bought depend on stable market prices and foreclosure rates.
Over the next few years $1.4 trillion in commercial Real Estate loans will come due. Currently, half are under water, occupancy rates for office space is running at 18 percent. Rents have declined 40 percent for office space and 33 percent for retail space. Unlike home mortgages, commercial Real Estate loans are for a set period of three to ten years after that initial period the entire loan balance becomes due. Under normal circumstances the developer would simply apply for a new loan, but what banker in their right mind wants to refinance a commercial Real Estate loan?
The stock market is defying gravity, the banks are denying reality, the Federal Government is just in denial. The Federal Reserve is bailing out the banks as fast as they can, trying to keep the game going just a little bit longer. Critical mass is coming and those in the know are going, getting out of Dodge while the gettings good.
You can see it and hear it in their smiles and happy talk, "well, I gotta go now" they say, as they sidle towards the door. Before the next elections the ax will fall, welcome to Phase 2!