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Housing prices will keep falling. Here's why.

By   Follow Me on Twitter     Message Richard Clark       (Page 1 of 4 pages)     Permalink

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If the number of foreclosed homes piling up at banks is any indication, there's ample reason for concern re: home prices. As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier....

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Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That "shadow inventory" was up 30% from a year earlier. Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That's nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices -- and thus boost their losses." ("Number of the Week: 103 Months to Clear Housing Inventory," by Mark Whitehouse, Wall Street Journal http://blogs.wsj.com/economics/2010/04/24/number-of-the-week-103-months-to-clear-housing-inventory/)

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Got that? There's a 9-year backlog of distressed homes. The banks are deliberately fudging the numbers to hide how bad things really are. The number of homes in late-stage foreclosure is not 1.1 million, but nearly 6 million 5 times more than the banks are admitting. Housing will be in the doldrums for a decade or more. It's shameful that people can't get basic information like this to help them make their investment decisions. The banks couldn't pull off this type of information warfare without the help of government officials pulling strings from inside. Bernanke and Geithner must be involved.

So, what's the objective?

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The banks are trying to keep prices artificially high to avoid writing-down millions of mortgages that would force them into bankruptcy. It's called "extend and pretend" and its poisonous for the broader economy because it distorts prices and keeps a broken banking system in place that can't perform its social purpose.

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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