Most commentary on the housing markets — from the industry, from analysts, from the media — all give the impression that the housing crisis is well behind us. One economist in U.S. News & World Report highlighted the slight uptake in new single-family homes this year as fodder for economic growth. So is a $4.95 purchase of Ben & Jerry’s. Like we discussed last week, the increase in new home sales isn’t worth a hoot.
Nobody sees the greatest long-term trend: The next generation cannot fill the shoes of the baby boomers. It’s smaller and they simply cannot match the spending power of their predecessors. The economic implications are profound — especially for real estate, because unlike disposable goods, it never goes away. That’s why Chapter 3 of my book The Demographic Cliff is entitled: “Why Real Estate Will Never Be the Same.”
But there are other short-term dangers that’ll make this bad situation even worse. And almost no one sees them.
Long term, the boomer’s decline in housing demand triggered the housing crisis. The shorter-term trigger was the subprime crisis. That’s what happens when you issue a ton of bad loans while home prices keep dropping.
But economists keep pointing at the latest positive numbers to show we’re heading to recovery. Look at the Case-Shiller Index up almost 16% since the start of 2013. Look at the Federal Housing Finance Agency’s index up 11% over the same period. Guess what? Those numbers are mostly bogus.
A recent piece from Keith Jurow called “Why the Housing Market Collapse Is Set to Resume” explains why. Like me with the stock market, Jurow’s one of the only guys warning about a crash in the housing market.
He looks at Core Logic, the premier source on mortgage delinquencies. Their data shows that delinquencies have fallen from 2010’s high of 8.6% to 3.9%.
Sounds good, right? Except the largest banks report completely different figures. Wells Fargo reports a delinquency rate of 13.8%. JP Morgan Chase: 13.3%. And Bank of America: 12.9%. Those are a lot bigger than 3.9%. And much more threatening.
