Prices are down 40% with probably at least another 5 or 10% to go, even under good circumstances. But these are decidedly not good circumstances.
You see the government got involved and tried to "fix" things. Can you say "unintended consequences?"
Toward the end of their report, as a kind of second opinion, the T2 duo cite some observations last month by Mark Hanson of the Field Check Group, a seasoned research outfit that specializes in real estate and mortgages. And not surprisingly, he's at one with their downbeat analysis. In fact, if anything, he's even more bearish and puts a lot of the blame squarely on ill-conceived attempts to ease the plight of troubled homeowners by tinkering with their loans.T2 Partners, a consulting firm in the area of finance who have been fairly accurate prognosticators so far in this recession. They see five waves of housing losses - two are behind us, three are yet to come.
More specifically, he cites all of those "terrible kick-the- can-down-the-road modifications that leave borrowers in five-year teaser, ultra-high leverage, 150% loan-to value balloon loans" that when they start adjusting upward will "turn millions of homeowners into overlevered, underwater, renters, and ensure housing is a dead asset class for years to come."
In the first two waves, the losses of which appear largely behind us, the chief causes of distress were rooted in fraud, feckless speculation and payment shock induced by mortgage resets.Put that all together and the recession housing goes on another year or so.
The last three waves, the big losses of which have still to come, include prime loans (mostly owned or guaranteed by Fannie and Freddie); jumbo primes, second liens and home-equity lines of credit (most of these are on banks' books), and loans outside housing, notably the tidy $3.5 trillion of commercial real estate.
If you want to take a look at the real face of recession, you might consider the under count in the unemployment number.
The harsh truth is that, using the regular payroll data, a rather formidable 14.5 million people are out of work. Moreover, if we look at the category we feel gives a more accurate picture -- the so-called U-6 tally -- which includes people too discouraged to keep looking for a job and those working part-time because they can't find full-time slots, the unemployment rate shot up to a new high of 16.4%. That means that something around 25 million folks are effectively on the dole. Ugh!And wasn't the stimulus supposed to keep the unemployment rate below 9 percent.
Asking the government to "fix things" is like asking government to make the tides stop rising. I'm sure they will be happy to create a department, it just won't be too effective.