American Dream or American Nightmare?

Here is an email from JMI that I would like to share. Jeff writes:

Green Shoots or Kudzu?

The most recent report on home foreclosures was very ugly. The second quarter foreclosure rate was at 889,000. Annualized, that is about 3.5 Million homes foreclosed upon in 2009. The national stats for homeowners in the US in 2007 was about 75 million homes owner occupied. The National Association of Realtors is projecting 5.5 million homes to be sold in 2009.

Additionally, this report highlights that 8.3 million households are now underwater and at risk of "walk aways". 2.2 million more will be underwater if we go down in prices another 5%. Option ARMS are just beginning to be reset and those numbers will peak in August of 2011 and will most likely drive all of these numbers higher with higher mortgage payments. These are all published numbers from non government agencies.

Here is a summary

• US Households: 75 Million
• 2009 Projected Foreclosures: 3.5 Million (1 of every 21 households)
• 2009 Projected Home Sales 5.5 Million
• Inventory of Foreclosures 2 1/2 years (assuming 25% of home sales are foreclosures)
• Number of Homes Underwater 8.8. million (1 of every 8.5 households)
• Number of Households underwater if prices decline another 5%: 11 Million (1 of every 6.8 households)

The American dream of owning a home has quickly turned into a nightmare of monumental proportions going well beyond almost anyone's wildest and darkest thoughts.

As unemployment rises above 10% and more Americans are faced with their homes being underwater, the bottom in this market is years away and will be a drag on our economy like never seen before. Home ownership will never rebound to the 75 million again as millions look for cheaper rent and an opportunity to repair their balance sheets.

I really believe these are greenshoots; the Kudzu variety.

Jeff

Thanks Jeff.

For more foreclosures please see Foreclosure Filings Hit Record 1.5 Million; One in Eight Americans Delinquent; Obama's Mortgage Rescues Create ‘Confusion’.

Jeff is correct. Foreclosures and defaults of all kinds and consumer balance sheet repair in general will be a drag on the economy for years, possibly even a decade. I Expect Seven Years of Subpar Growth and High Unemployment at a minimum.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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