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Housing in deepest decline since the Great Depression, economist says
By Steve Kerch, MarketWatch
Last Update: 4:48 PM ET Mar 4, 2008

CHICAGO (MarketWatch) -- Housing is in its "deepest, most rapid downswing since the Great Depression," the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.

The NAHB's latest forecast calls for new-home sales to drop 22% this year, bringing sales 55% under the peak reached in late 2005. Housing starts are predicted to tumble 31% in 2008, putting starts 60% off their high of three years ago.

"More and more of the country is now involved in the contraction, where six months ago it was not as widespread," said David Seiders, the NAHB's chief economist, on a conference call with reporters. "Housing is in a major contraction mode and will be another major, heavy weight on the economy in the first quarter."

A home-sales measure tracked by the association that includes data on cancellations from 30 large U.S. builders that account for one-quarter of all sales shows sales down 65% from their peak in 2005, Seiders said. Government measures of home sales do not include numbers from contracts that were signed but buyers later backed out.

Vacant homes for sale in the U.S. now number about 2 million, Seiders said, an increase of 800,000 from 2005. That inventory overhang is bedeviling builders, who have been forced to cut prices and write down the value of their holdings. Read more on the builders' plight.

"Weak demand and oversupply naturally put downward pressure on prices," Seiders said

His last entry is headed "Bernanke to Banks: Take the Hit" and it relays Bernake's suggestion for lender's to write down their principle on loans- http://bigpicture.typepad.com/comments/2008/03/will-helicopter.html Ritholtz closes that with "These are indeed strange and interesting days . . ." Bernake's statements are covered in the second report down in the breaking news section at Bloomberg- http://www.bloomberg.com/apps/news?pid=20601087&sid=afk9xW8jmF5I&refer=home

The previous entry is on people in foreclosure taking advantage of the backlog and expense of foreclosing in parts of Florida. It is headed "Foreclosure-proof Homeowners"- http://bigpicture.typepad.com/comments/2008/03/foreclosure-pro.html - and the correspondence leading to the entry will follow.

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"There is a very important phenomena that is occurring that has only been covered in an only "glancing" manner. Beyond the concept of "jingle mail" -- which suggests that folks who can pay their mortgages may just choose to walk away given the dramatic loss of equity due to housing's collapse -- consider the following: As a developer, I had stepped to the sidelines and rented beginning in 2005, because I was sure that housing was unsustainable and was bound to collapse; it took 2 more years for it occur.

Nonetheless, as I have followed several of the homes that my wife and I were interested in a few years back, they are all on the market now. What is shocking, that in each and every case, I have been told by brokers and banks that the owners, have ceased paying their mortgages in some cases for nearly 2 years and have continued to occupy these homes. Now, these are homes in excess of $2,000,000 in the very best neighborhoods in South Florida. Brokers have added that these buyers further complicated things by putting huge home equity lines on top of their mortgages and now have no possibility of selling their homes for amounts needed to cover their accumulated debt.

This may not seem like news, but understand what this means: There is currently an 8-10 month wait to get a court date to have a foreclosure filing heard in Dade and Broward counties. The bankers have non-performing loans on their books to the best heeled borrowers in multi-million dollar amounts with no immediate means for recovery; with a non-secured second mortgage in place, there is no possibility for a "short sale" that will satisfy all of the borrower's debt. They are reluctant to take a haircut knowing that they have the home equity debt still around their neck and are likely to frustrate any near-term sale.

There is no clean way to sell the home that would guarantee "clean title" hence a foreclosure is the only means to separate the property from the dead-beat speculator/squattor. Banks do not want to spend the $50,000 required to take a home through a foreclosure and clear the title -- only to put the house back on the market for a deeper loss afterwards. Most likely, they have not revealed these owner occupied defaults to their shareholders, thanks to the sheer numbers of non-performing loans on their balance sheets, and the daunting task of foreclosing on all of them. This is the ultimate seizure and full stop of the market whereby everyone is standing in a stalemate. As one broker said to me, "these bums sitting in $3,000,000 homes overlooking the water are likely to be left alone by the banks for 2 years before the banks even get serious about foreclosure."

So here is the difference between "walking away," these folks are doing anything but walking away, they are sitting on lounge chairs sipping martinis living cost free! (not to mention that they have ceased paying property taxes and insurance). I can only imagine what this market will look like in the coming years . . ."