The Housing Collapse Continues!

Good Evening Folks!

I gotta admit: Sometimes its hard to write this blog everyday as I watch our economy implode. The news just keeps getting worse folks. Stocks fell another 1% today as worries around the economy continue to intensify.

The main culprit for the drop was the absolutely horrific housing numbers that were released today. Median resale prices in November dropped 13% which was most likely the largest drop since The Great Depression.

"Dec. 23 (Bloomberg) -- Sales of single-family houses in the U.S. dropped in November by the most in two decades and resale prices collapsed at a pace reminiscent of the Great Depression, dashing speculation the market was close to a bottom.

Purchases of both new and existing houses dropped 7.6 percent from the prior month, the biggest decline since January 1989, to an annual rate of 4.43 million, government and industry figures showed today. A 13 percent drop in the median resale price from a year earlier was the most since records began in 1968 and was likely the largest since the 1930s, the National Association of Realtors said.

“Housing is still in a freefall,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.

The figures were worse than economists had forecast and signal that the battered housing market that led the economy into a recession may be taking another lurch down. Sliding property values mean more Americans will be under water on their mortgages, destroying household wealth and undermining consumers’ purchasing power.

The average rate on a 30-year fixed-rate loan fell to 5.18 percent in the week ended Dec. 12, the lowest in more than five years, according to the Mortgage Bankers Association.
Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., New Jersey’s biggest homebuilder, called on the government to provide an economic stimulus for the housing industry.

“If government wants to get to the root of the problem they need to fix housing first,” Hovnanian said in a conference call on Dec. 17. Hovnanian, whose company reported a fiscal fourth quarter loss, didn’t specify what type of government intervention he wants in the housing market."

My Take:

What can I say, I'm speechless. This number was way worse than anticipated. Housing prices in every region of the country fell significantly. I have often said on here that our economy hinges on housing prices. The second section of this article that I highlighted says it all as to why the consumer is in such trouble. We have lost a lot of our ability to consume.

Falling housing prices also exacerbate Wall St's problems because their balance sheets are filled with bloated over priced McMansions.

Rates have dropped dramatically and yet its done nothing to stimulate housing demand. Refi's have increased but the demand for new or exisiting housing has vanished.

What really pisses me off is that the government continues to try and fix the problem by constantly attempting to prop up housing prices by pouring liquidity into the banks in an attempt to re inflate the housing bubble with more cheap money and low interest rates. When are they going to realize that this isn't going to work?

In my eyes, prices must fall dramatically before anyone goes near a house. Confidence has been totally destroyed. Americans see nothing but corruption and a constant changing of the rules in the housing market. They no longer TRUST the system. They don't even understand it. I constantly have friends and family coming to me totally confused by whats going, and asking me if they should refinance since rates have dropped into the 4's. All of this confusion has done nothing but paralyze the consumer. No one wants to make a mistake or get "screwed" by a greedy lender. Trust is gone. Once this happens its over folks.

In my eyes, its gotten to the point where no one wants anything to do with a loan or a bank until TRANSPARENCY comes back into the financial system. They won't come back until they have faith that they aren't getting screwed and they understand what they are getting into. I think the Fed lost the public when the loan modifications and quantitative easing started. Its simply got too complicated to buy a house now. This is the biggest purchase anyone will ever make in their lifetime. Its a 30 year commitment. How can you ask them to buy when Wall St has totally GAMED the system???

I feel like screaming "Stop the Insanity!" like that women from the 1990's who did the exercise infomercials.

So what ends up happening when housing prices continue to free fall as the confused buyer attempts to understand whats going on in the housing market?

BUYERS STRIKE!

This is how deflation spirals are created folks. Deflation scares the living daylights out of the Fed: It creates a death spiral where no one buys and prices continue to drop. As prices continue to drop, the buyers continue to stay on the sidelines waiting for even more drops. Its a viscous circle. The pros call this is called a negative feedback loop, and its a hard loop to stop once it gets started!

This is why you saw the Fed use every trick in the book last week in an attempt to stop this deflation.

In my opinion, there is no way that the Fed can stop housing from completely imploding at this point. They need to drop the playbook, step to the sidelines, and let free market capitalism take its course. If this destroys the banks that did the bad loans than so be it. We can always create new banks that have healthy balance sheets will actually allow them to lend!

Bottom Line:

Enough is enough Mr Bernanke: Its time to walk away and let nature run its course. If you don't start to walk, your homeowners will.

20% of current home loans are already underwater and you are playing a dangerous game of chicken. What are you going to do if they decide to walk as you continue to modify loans and change the rules? Stop providing liquidity to a bunch of banks who won't lend. Stop wasting our taxpayer money. You have thrown $8 trillion at this problem and prices continue to plummet!

Save whats left of your balance sheet for the depression that we are about to head into as a result of your bailouts.

Trading:

I have been trying to go long on a few names thinking we might see a Santa Clause rally over the holidays. Each day I refuse to pull the trigger as the news continues to worsen. I am still short FAZ, SRS, and BEARX. I saw no reason to take any of them off going into the close.

There is absolutely no enthusiasm on the long side folks. Buyers continue to sit on their hands. How can anyone buy after reading these type of headlines everyday? I refuse to try and front run the long side with some longs because i really believe the bottom could completely fall out of this market at any time.

2009 is going to be a long chaotic year.

Save your pennies. You will need them.