Mesquite Market

Obama’s Economic House of Cards

If they can not sell homes based on real value and honest supply side numbers, then create a false supply number and trick those stupid consumers.

Foreclosure freeze will have a “cause and effect” in the residential real estate markets across the country. The most damaging affects will be in the regions where prices increased the most during booming funny money years.

First, home sales will stall. Who is going to buy residential real estate when they know the banks are sitting on millions of distressed properties that eventually must be sold. The idea that they can manipulate the supply side and hold the consumers hostage to higher pricing may work on a few less informed, less sophisticated buyers. It is based on the assumption that most consumers are stupid, and this is simply not true.

Second, strategic defaults will increase. Who is going to keep making mortgage payments on a home mortgage that has a much higher balance than the home is worth. Today the average homeowner lives in the home for 15 to 18 months after they default or stop making mortgage payments. The foreclosure freeze will add to the time a homeowner can live for free in the home once they have defaulted on the payments. Based on what we know right now, due to litigation and the foreclosure freeze, it could stretch the free living time out for years. This is a huge incentive for many to stop paying their mortgage payments.

Third, the foreclosure freeze will cause an inventory backlog or shadow inventory will increase. The increase in shadow inventory creates a false market picture for those touting home sales. Builders, real estate sales people, politicians can all use this false supply picture to create urgency and fleece consumers. Shadow inventory is difficult to count and harder to quantify in terms of real value. Supply and demand are as reliable as gravity, you can depend on it. When you artificially manipulate the supply side or hide (shadow inventory) the real inventory, you are deceiving the consumers. This appears to be deliberate deception by the Obama economic administration (Harry Reid supports the freeze) and the banks, to fool those stupid consumers into buying over priced homes. It is an attempt to artificially hold up the inflated home prices. An attempt to draw more misinformed people into the housing mess.

The last three years have brought us numerous forms of government and bank attempts to interfere with the free markets. They have ranged from bank bailouts to artificially low mortgage rates and more. The huge majority of mortgage loans being made today are low interest rate, low down payment government backed loans, Fannie Mae, Freddie Mac, FHA, USDA, all artificial manipulation of the markets. None of these programs have worked, the distress is increasing and values are still falling. This is just one of Obama’s economic failures. Now with the foreclosure freeze, they intend to hide the real supply of homes available.

Until the market actually gets past the overhang of distressed homeowners, the backlog of inventory of over extended homeowners, anyone buying a home may be paying too much. The best deals are yet to come.

Free markets work, home values based on honest, real supply and demand do appreciate. When home values are based on dishonest numbers, it is little more than are house of cards. Obama’s economic team and his special interest buddies at the banks have created and continue to add on to their house of cards.

If you are thinking of moving, consider renting!