House it going?

Speaking of households, I think it is worth noting that people are starting to understand that the real-estate market still has plenty of trouble ahead. For the longest time it seemed like optimism trumped the facts, but now it seems that the latter are getting the upper hand.

Of course, negative psychology will help reinforce that process, but the Fed and the federal government have been trying to fight the corrosive consequences of the real-estate bubble for the past three years, to little avail other than increasing the bonuses of the banksters.

Thus, having that market clear would be welcome news, because that is the only way to move forward.

In a recent email, the always-insightful Mark Hanson, of Mark Hanson Advisers, noted that "the U.S. housing market and sentiment around it remains crushed under the weight of:

  • Millions of excess vacant housing units.
  • Stubbornly high homeownership levels.
  • Epidemic effective negative equity (unable to pay off mortgage, pay a realtor 6%, put 10% to 20% down on a new purchase, and qualify for the new mortgage) sharply higher than the commonly thought 28%.
  • A massive default, foreclosure, and short sale back log (only 4 million foreclosure completions and short sale liquidations completion since 2007 out of a probable 14 to 18 million) .
  • Servicers in liquidation mode, focusing on short sales and REO resales, particularly notable at the mid-to-high end.
  • New QRM rules, lower GSE/FHA loan limits, mortgage interest deduction on the firing line, and mortgage servicer risk, expense, volatility and rights valuations all negatives especially for mid-to-high end markets.
  • Historically low household formation metrics.
  • Several months of confirmed (month over month and year over year) price declines.
  • Unfavorable demographics.
  • Less affordability relative to the bubble years.

That is a pretty good synopsis by Mark and, given that the lame recovery we are struggling through is a consequence of the real-estate bubble that came before, it is worth keeping in mind that there is no magic bullet for housing.

Inventory needs to be moved from those who own it and can't afford it to those who can, which will entail lower prices and more pressure on the Fed to continue the policies that led us to this point in the first place.

King World News

In my most recent interview with Eric King, we discuss recent silver volatility and the gold market, as well as bonds, currencies and other elements of the funding crisis. Those who are interested can listen to it here.

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.