Housing Recovery? Where?

I hope all of you home sellers got out while you still could. As you can see below, mortgage applications have fallen off a cliff since the tax credit ended:

Quick Take

I warned about this within the last week and the numbers are uglier than I expected. Applications fell 14% the week after the tax credit ended and then fell an additional 27% the following week. These are the worst numbers since 1997 according to Reuters.

Flippers Beware! The mini housing recovery is toast.

Here is a little advice for the sellers out there: If you couldn't sell your house during the tax credit period than I suggest you seriously re-evaluate where you are pricing it at and then drop it. You don't want to be the last person on the block selling in a situation like this because it's going to get bloody out there.

Without the tax credit the housing developers and sellers now face the grim reality of trying to sell to a market that has close to 20% U6 unemployment. They also have to deal with the severe "hangover effect" thats been created by the stimulus that inhaled most of the first time home buyers as well as the rest of the low end of the market.

What we are now left with in housing are millions of empty homes that are priced where no one can afford to buy them in a market where there is no demand. You also have builders with huge inventories that are starting to get pressured by the banks who are really ansty about getting paid back after funding the largest housing bubble in the history of this country.

If this isn't "The Perfect Storm" then I don't know what is.

If you are just putting a house on the market I suggest that you undercut your competition. The run for the exits is going to be fast and furious once the reality sets in that there are no buyers, and I expect prices to start to fall off a cliff again by the end of the summer.

Remember, the banks have been easy on the builders this go around when it comes to getting paid back because they understand how tough the economic conditions are out there. The Fed knows it too and they have made it easy on both parties via lax accounting standards in order to get this mess "cleaned up".

The problem here is this cannot go on forever. At some point the music has to stop and bills need to be paid. With banking reform right around the corner I expect that things are about to change.

There will be an inflection point where the builders are going to be forced to reduce prices over and over until they sell in order to avoid being forced into BK by the banks. I believe the end of the tax credit will be the spark that lights off The Final Housing Time Bomb that finally gets us to the bottom.

Expect to see a lot of pain when it does.

When this capitulation begins it's going to destroy whats left of the housing market. Bubbles always pop and so far the reduction in housing prices has been far too orderly.

If you are a buyer sit on the sidelines because demand is about to fall off a cliff without the tax credit.

This will eventually smoke out the sellers and builders and force them to capitulate all at once because no one will want to be the guy left holding the bag once it starts to unwind.