The REAL Reason Housing Prices Have Skyrocketed

How Another Housing Bubble Was Blown … And Why

Preface: In Part 1, we showed that mortgage applications are down, and it is really institutional investors driving the housing boom. Part 2 explains why.

Housing prices have boomed because:

(1) Lenders are artificially keeping vacant houses off of the market

and

(2) The Obama administration has thrown all sorts of artificial incentives at institutional investors to pump up prices

Artificially Suppressed Housing Inventory

Naked Capitalism reported last August:

Two trends are apparent. One is that banks are delaying foreclosures, or not foreclosing at all despite long-term delinquencies. The other is that private equity firms – flush with cash thanks to Tim Geithner’s religious devotion to trickle-down economics and the resulting cascade of corporate welfare – have been bidding up and holding foreclosed houses off the market. These two factors have artificially limited supply and, combined with cheap mortgages rates, driven up prices. While we can debate whether these strategies represent the best public policy, these policies are obviously not long-term sustainable.

***

Lenders argue the drop in foreclosures is caused by delays in the court system. However, Judge Jennifer D. Bailey, lead foreclosure judge in Miami-Dade County – epicenter of the foreclosure crisis – solidly rebuts that argument. “Here in Miami-Dade County’s Eleventh Circuit, there has been no delay in foreclosure case hearings for nearly two years,” Judge Bailey said in an Aug. 19, 2012 interview with the Miami Herald. “If you want to see a judge to hear your trial or summary judgment, you get a prompt court date.” This coincides with my own observations in foreclosure court, where judges rail at bank lawyers for repeatedly delaying their cases, even when borrowers are in no way contesting their foreclosures.

Holding back inventory means that the houses that are put on offer sell faster and at higher prices. That creates an incentive to delay foreclosures or not foreclose at all even when a home is delinquent.

Indeed – in the real world –  12.6 million houses are vacant1.5 million more home than are underwater. In other words, without artificial scarcity created by banks, there would be more available houses than there are underwater homeowners having problems paying their mortgage.  There would – in a word – be a glut.

Government Is Secretly Helping Financial Companies to Snap Up Housing

There are realistic ways to help the economy. For example:

But instead, the government’s entire strategy is to try to paper over all of the real problems with the economy by artificially propping up asset prices  in an attempt to hide the fact (which has been obvious for years) that the big banks are insolvent.

Stocks, for example, are largely being driven by insiders and government policy.

Indeed, we’ve pointed out for years that all of the Obama administration’s “homeowner relief” programs are really just back-door bailouts to the big financial companies … and are not even intended to help homeowners.

Mike Whitney explained last September:

Private Equity firms are piling in to the housing market to take advantage of bargain basement prices on distressed inventory. The Obama administration is stealthily selling homes to big investors who are required to sign non-disclosure agreements to ensure that the public remains in the dark as to the magnitude of the giveaway. Aside from the steep discounts on the homes themselves, the government is also providing “synthetic financing to reduce the up-front capital required if they agree to form a joint venture with Fannie Mae and share proceeds from the rental or sale of properties.” (Businessweek)

In other words, US-taxpayers are providing extravagant financing for deep-pocket speculators who want to reduce their risk while maximizing their profits via additional leverage. The plan resembles Treasury Secretary Timothy Geithner’s Public-Private Partnership Investment Program …. Speculators are getting lavish incentives (gov financing, low rates, and severe discounts) in secret deals to buy distressed inventory which should be available to the public at market prices. If that’s not a ripoff, then what is?

***

Obama’s preferred customers are getting discounts of up-to 60 percent of the home’s peak value and generous gov-backed financing to boot!

***

As the article above indicates, there’s no shortage of delinquent homes that will eventually be foreclosed. That means the process is being dragged out so the banks don’t have to fess-up to the losses on their fetid pile of nonperforming loans Here’s a little more background from an article in Businessweek

“About 6 million U.S. borrowers will lose their homes in the next five years because of inability to pay their mortgages, creating demand for as many as 4 million new rental households, according to Scott Simon, head of mortgage bonds at Pacific Investment Management Co. in Newport Beach, California….

Single-family rentals are priced to deliver unlevered total returns in the range of 7.5 percent to 8 percent, or about 0.5 percentage point to 1 percentage point higher than institutional-quality apartments, according to a June 8 report by Ray Huang, senior associate at Green Street Advisors in Newport Beach, California.  (“Colony Said to Win Foreclosed Homes Sold by Fannie Mae”, Businessweek)[Link.]

If “6 million homeowners” will lose their homes in the next five years, then why are clownshoes media dupes touting a “bottom” in prices and a “market rebound”?

It’s all hype. And look at how calculatingly fiendish Obama’s foreclosure-to-rental program really is. The big boys have figured out the nearest penny how much they can make by throwing people out of their homes. (7.5 percent to 8 percent) Talk about heartless. And, of course, this whole process is being orchestrated by President Fairydust and his Wall Street Pranksters to keep prices artificially high and preserve the illusion that the banks are solvent.

It’s infuriating!

And if that isn’t hard-hitting enough for you, Jim Quinn writes:

The contrived elevation of home sales and home prices has been engineered by the very same culprits who crashed our financial system in the first place. This has been planned, coordinated and implemented by a conspiracy of the ruling oligarchy – the Federal Reserve, Wall Street, U.S. Treasury, NAR, and the corporate media conglomerates. Ben’s job was to screw senior citizens and drive interest rates low enough that everyone in the country could refinance, attract investors & flippers into the market, and propel home prices higher. Wall Street has been the linchpin to the whole sordid plan. They were tasked with drastically limiting the foreclosure pipeline, therefore creating a fake shortage of inventory. Next, JP Morgan, Blackrock, Citi, Bank of America, and dozens of other private equity firms have partnered with Fannie Mae and Freddie Mac, using free money provided by Ben Bernanke, to create investment funds to buy up millions of distressed properties and convert them into rental properties, further reducing the inventory of homes for sale and driving prices higher. Only the connected crony capitalists on Wall Street are getting a piece of this action. The Wall Street big hanging d[!@#*] have screwed the American middle class coming and going. The NAR and media are tasked with what they do best – spew propaganda, misinform, lie, cheerlead and attempt to create a buying frenzy among the willfully ignorant masses. The chart below reveals the truth about the strong sustainable housing recovery. It doesn’t exist. Mortgage applications by real people who want to live in a home are no higher than they were in 2010 when home sales were 33% lower than today. Mortgage applications are lower than they were in 1997 when 4 million existing homes were sold versus the 5 million pace today. The housing recovery is just another Wall Street scam designed to bilk the American middle class of what remains of their net worth.

Of course, economist Michael Hudson would put it a little differently: banks are trying to roll back all modern laws and make us all into serfs.

In other words, the giant financial service companies are attempting to privatize public resources, socialize losses, scam people out of their homes and other private property … and then rent back to us what we used to own for a hefty price.

Do you understand the game now?

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  • gozounlimited

    The Dow is down 208 points as of 11:39 PT. The Fed has indicated they are backing off purchasing MBS… mortgage rates ticked up ….. and bond investors have turned bearish with popping treasury spreads and dollar value. Bubble Blowback.

    A whole lot of people have refinanced in Cali replacing pre-2007 interest rates with below 4%. To many here, that can represent a savings of $1,500 or more a month in mortgage payments, helping many stay in their homes, or putting allot of cash in the wallet. California has slowed down foreclosures by enforcing the reinforced law. So looks like home values (bubbles) are determined by location,location, location.

  • Tonto

    In an ascending order of its attributable heinous nature, Mark Twin once said something on the order of, -There are lies. There are damnable lies. And then there are statistics.-

    I am something of a successful real estate speculator. (I speculate in lots of things, but no paper!)

    The offers I am currently making on real estate have been going down steadily in an inverse relationship with the ever greater lies being told about a recovery in the real estate market. It’s not true. There is no recovery in the real estate market.

    It’s not true because the only higher priced houses being sold are those houses already owned by the banks. And those higher-priced homes the banks own are being sold based on -incredible- finance terms that are not related to the real financial marketplace at all.

    An individual has no chance of selling real estate in this marketplace, because when an individual sends his buyer to a bank for a mortgage, the bank refuses to finance any individual’s house (unless it has gone into foreclosure). So, when you send your buyer to a bank, you are essentially sending your buyer to be sold another house by the bank, a house the bank WILL finance.

    This has been the nature of the real estate -finance- marketplace since 2005. Individuals are out of luck. UNLESS individuals get very competitive with their pricing, no cash-speculator like myself will even bother to inquire. And individuals have almost zero chance of getting a bank to finance their house as long as the banks own so many properties.

    The housing statistics mean nothing as long as the finance swindle is so lopsided in favor of bank-owned real estate. Cash is still king.

    • gozounlimited

      We need a market….nothing more fun than RE spec., building, interior design, buying, selling, flipping…. passion for me too.

  • jadan

    To decapitate the financial oligarchs, we must end the Fed and the private ownership of the nation’s money. Public banking means public control of the money supply. Transparency, accountability, and the rule of law are the only means guarantee the stability of a nation’s money. Only a monetary revolution can put an end to financial crime and restore the nation’s prosperity.

    • Tonto

      Hello? Public control of the money supply is exactly what is ruining the economy today.

      We no longer have an independent FED. The FED has been wholly politicized. Ben Bernanke is completely answerable to our elected representatives in Washington D.C. It is Washington D.C. that is corrupt, not the independent FED. Our country still leads the financial world by an extremely wide margin. Thank the FED that was ONCE independent. Ben Bernanke is shackled to endless Congressional subpoenas to be interrogated by show-boating elected officials who have no clue how an economy really works. Economics is not intuitive. And neither is leading the world.

      I fail to understand why these delusional public banking air-heads fail to see that Ben Bernanke is doing -exactly- what he is being asked to do by the people in Washington D.C., your elected representatives and mine. In other words, the misinformed people who voted for all the morons in Washington D.C. are getting exactly what they deserve in terms of money creation and FED policy. Today’s FED policy coincides exactly with what the Congress and the President want.

      In other words, there can be no more “public” banking than the fool things Ben Bernanke is doing.

      This is juxtaposed here and a few other places by the faux journalist Carl Herman working the alternative media like a droning, hand-cranked, hurdy-gurdy, “public banking” sideshow that is a miniscule farce on the face of the earth. They should sell balloons and cotton candy too!

      Discussion of this group of self-promoting, ill-informed, self-proclaimed omniscient-genius-clown-wizards is a waste of everyone’s time, and for most here, a waste of the few brain cells they have left.

      A mind is a terrible thing to waste. Try and refocus yours on something more productive than the “public banking” pamphlets being churned out by these fame-seeking clowns seeking a revolution because they have all the answers! Sure they do. Not one of them even holds down a legitimate job.

      • jadan

        Tonto, your point of view is among the most peculiar I have encountered. An “independent Fed”? What in the name of the true & beautiful is that? Independent of what? Any concern for the public interest? You seem to lack all understanding of money, even though from what you say, you are a rather sophisticated investor. Your theory ( a genuine conspiracy theory) about the banks refusing to finance anything but their own distressed properties, is interesting. I think you may have time traveled into our day from 1912 or thereabouts, or you may be channeling Senator Nelson Aldrich, ( R-Rhode Island) Chairman of the National Monetary Commission, and one of the architects of the Federal Reserve Act. An extremely rich and heinous individual, Aldrich relentlessly championed the independence of the monetary authority. He believed the people were much too stupid to manage their own financial affairs. Only the rich, he believed, had the knowledge and experience to manage the nation’s money. Lots of people bought this clever con, and this particular line of bullshit is still believed today, but quietly. Fascist oligarchs like Aldrich keep a low profile. People are much smarter than you give them credit for, Tonto. The day of the rich is over, believe it or not, because they have demonstrated their complete incompetence in the nation’s financial management. This article George has produced is the story of this awesome ignorance. Bernanke serves the same masters as most of the members of congress: the wealthy minority, who own all the large corporations and most every other asset and are still not content. Bear in mind that these vicious congress people have largely been elected by the Koch brothers and their ilk. What you see is a highly unstable situation, Tonto, and we’re not going back to any gold standard, or the good old days as depicted in Horatio Alger novels. No, time moves on. Fuck you and your nostalgia for some Reagan fantasy land.

        • Tonto

          “People are much smarter than you give them credit for, Tonto.”

          Are they? I think we are approaching the point where a majority of the people are welfare recipients clamoring for more free money. It’s a sad state of affairs when purported economists are competing with more ideas of how the federal government can be more generous with how money is being printed and thrown out of helicopters.

          That is what the “public banking” rascals here are about. They want the states to print money to create full employment. Just what will all the people do for a living when they are all employed by the state? A socialist circle jerk in the bread line? Oh! I know, we will all build a Jetson’s future by rebuilding the infrastructure! LoL These people are dreamers who have never worked a day in their lives.

          A pickaxe, a shovel and a sledge hammer could be left on the street corner in the typical “public banking” borough unattended for weeks on end, and no one would ever think to steal it. But the same people will walk around with stolen shopping carts picking up empty soda cans for the deposit money they can use to by liquor. “Hooray!” said the “public banking” crowd.

          As for the people being smarter than I think, I wish they were. But, damn! Read Carl’s endless rant critically. He has no sense of -how- what he has written reads. The situation is as honestly as funny as Mark Twain’s famous Jumping Frog short story. Herman doesn’t have a clue how foolish he is.

          Obama has gotten himself elected by appealing to liberal women, welfare-blacks and homosexuals. That’s his natural constituency. So, even while the majority of the American population is not yet on welfare (as it is in Italy, France and the UK) perhaps the majority of American voters in the last election were indeed welfare recipients. Obama got the fat and tattooed white swine out in droves, and the welfare blacks never voted in such numbers. And the numbers of welfare recipients expressing their sovereignty clearly are rising at the polls. Step into the typical American voting booth in the U.S., and you are likely to catch cooties from the rabble that just exited through the filthy curtain. Yech!

          It’s the reign of -the greatest good for the laziest people- brigade (like the socialist Carl Herman) that are getting all agitated with the prospect of more money printing, this time by state governments. They all want a $600 monthly stimulus check from the state, -along with their food stamps, their section 8 housing and an Obama-phone to call their dope dealer on. Oxycontin is the drug of choice among this crowd. They call it “fingerless gloves” for the way it makes them feel numb. The dreams of these opium numbed fools are slipping through their fingers though. In this world, while you waste all your time with these stupid socialist dreams, you are wastefully expending the few short years where you can be productive enough to put away something for the future.

          Ah! Those were the good old days, is what these “public banking” morons will say when they get older, -if they ever do get any older.

          Unfortunately, all the endless money printing to sate the wants and desires of all these nanny-government interest groups makes for an unrewarding market environment for anyone actually trying to build a real business. Without stimulus money, in the Age of Obama the American consumer isn’t spending because he’s generally a flat-broke “public banking” loafer.

          Back to your original assertion, that “People are much smarter than you give them credit for, Tonto.” I am willing to place a significant wager that a higher percentage of the American voters in the last election were functionally illiterate, than in any election for more than one hundred and fifty years. You know that is true.

          So, yes indeed, your class of rabble does indeed have a constituency of some mettle geared toward revolution. Take away the hand of government that feeds the welfare-dependent no-count, and indeed he will riot. But there will be no revolution. Your constituents don’t have the mental capacity or the energetic drive necessary to pull it off. Your “public banking” constituency will riot. But there will be no revolution. The riots are coming, but the revolution is not.

          Your own kind of Epsilon Minor being is waiting for you to riot, dressed as riot-trained policemen driving those all those fetching armored vehicles Obama and the Obama-Congress bought for them. Hooray for socialism! We now build more armored vehicles for our police than any other country in the world!

          And the leaders of the “public banking’ campaign have about as much going for them as any other group of tards that go online to hurl the F word invective at the first comment poster who dares to tell the truth about the tomfoolery of their infantile ideology.

          Your type fool, literally personifies the colloquial expression about blowing it out your ass.

    • Doug_Terpstra

      Indeed. The so-called Fed is an unaccountable private cartel, an organized crime syndicate, answerable only to it’s crony members, Goldman, JPM, Citigroup, etc. All branches of the US government have been captured by this racket, not the other way around. This is why there hasn’t been a single high-level prosecution on Wall Street since the global financial crisis and why democracy is now a charade.

      • Tonto

        The FED is doing exactly what the people you elected to be in office are demanding they do. The FED is the embodiment of “public banking” jumping through stimulus hoops exactly as Congress and the President demand. “Print more money!” says Congress and the White House.

        “Woof, woof,” says the trick Princeton dog, Bernanke. “Woof, woof!”

        “Print more money!” says the political lap-dog FED Chairman in response to every demand the Congress and the President put on him. Is there anything more public than that?

        We are living in an age of “public banking” right now. Charlie Rangel couldn’t have designed a less effective FED policy. “Public banking” is proven to be a failure before your own eyes. Keep printing money, and drive up the price of housing! Keep printing money and keep the price of oil in the stratosphere!

        Keep printing money -and keep the American people as poor as in any socialist country-, and inflation will be controlled as the oligarchs pile their riches higher and higher.

        And now in typical public-double-speak they are saying, sell the gullible fools the idea that “public banking” will be their salvation from the poverty we have made for them.

        Your poverty is intended to keep inflation low. That is how “public banking” works. They print great piles of money for themselves, but you shall be under-employed and businesses shall be over-regulated to keep inflation low.

        What a den of socialist conspirators has gathered here!

        • Doug_Terpstra

          You have chosen a perfect pseudonym.

          • Tonto

            Yeah, sure. You socialists all claim there is no real business class, just a bunch of cigar-smoking fascist bankers weighing in at 500lbs, wearing wingtips and double-breasted suits.

            Your black and white reality is a delusion. The bad guys aren’t the capitalists. The bad guys are the socialists that want to take everything a man has worked for his entire life and inflate it away with “public banking” money printing schemes.

            So, I’m sorry to differ, chump. But I am still a businessman. And I’ve never had a loan or a credit card in my life. This crash is due to the credit economy suckers who bought the big lie that you borrow loads of money on your way to success in this world.

            In fact, I’ve picked up more money out of the street than I’ve ever paid in interest or late fees. And I still have some of that money too. So go figure, because that’s how the real business world works. You take what comes your way from the few deals that actually work, and you save it, end of story. (You do not ask the government to print more money, because they’ll do with the newly printed money exactly what Obama and the Obama-Congress have done with the trillions already printed by the Obama-Socialists. They stole it for themselves and their friends!)

            It’s called, HUMAN NATURE, which is why socialism and “public banking” don’t work.

          • bill

            Socialist for the rich Capitalism for the serfs.

  • Doug_Terpstra

    This is kleptoparasitism unlike anything the world has ever seen — neofeudalism on steroids brought to us by the great hope and change agent. But despite their diabolical brilliance, I don’t believe they ultimately have control of this monster. In the end, ropes and lampposts will be in high demand.

    • Tonto

      “This is kleptoparasitism unlike anything the world has ever seen —
      neofeudalism on steroids brought to us by the great hope and change
      agent”

      LoL! This is EXACTLY what you voted for in the last election!

      The devil is in the detail. You bought it with your vote. And NOW you own it.

      An what you own is riots, not revolution. You are your own worst enemy.

      • Doug_Terpstra

        What I voted for? Quite presumptuous … and wrong.

        • gozounlimited

          ‘qui no sabe’?

        • gozounlimited

          ‘qui no sabe’?

    • Peter Darley

      Re: The REAL Reason
      Housing Prices Have Skyrocketed

      washingtonsblog—June
      5, 2013

      It is said that those who forget
      history are doomed to repeat it. But five years? Has our collective memory
      become so short? Has greed (flipping) become rampant? The banksters cannot get
      away with this unless the sheeple co-operate.

      Too many people have forgotten
      the primary purpose of a constitution—to protect the citizens from their own
      governments. Throughout history, there have been too many dictators who assume
      that they can play with human lives as they like.

      Regards

      Peter Darley