Saturday, September 7, 2013

Mortgage Delinquency Rate


The mainstream media has never told the accurate truth about real estate investment or home ownership in the United States.  They did not see the 2007 bubble coming ("What a surprise!") and today in 2013 these same reporters, magazines, websites, government agencies, lobbying groups, and all the other assorted rabble of the real estate industry still can't seem to grasp the reality of the disaster looming in front of them.

The mainstream media loves telling us the housing market has "turned the corner" and prosperity and newly restored vigor and health are here.  Look at some recent headlines.  Take your pick from this lot.

Housing market has returned to full health, numbers show

Condo market remains healthy new study shows

Housing market shows strength

Bust to boomlet: Strength of housing market stuns

These headlines are delusional.  The best statistic to show how irrational such optimism really is comes from the Federal Reserve Bank of St. Louis who reported in August 2013 the delinquency rate on single family residential mortgages for the second quarter of the year was 9.41%.

9.41% is 558% higher than the single family residential mortgage delinquency rate in the same quarter of 2005.

FIVE HUNDRED AND FIFTY EIGHT PERCENT HIGHER.

Look at the Fed's own chart below.  Does that line look like a "healthy recovery" to you?


I guess the mainstream media assumes an extremely high delinquency, default, and foreclosure rate is a sign of a healthy and booming real estate market.  After all, if people can't afford to pay their mortgages on the properties they currently own we can assume they will quickly go out and buy even larger and more expensive homes, right?

The reality in real estate is much like everything else these days in America.

The rich are doing okay.  They are paying all cash for properties.  40% of all residential real estate transactions are now all-cash.  Mortgage money is super cheap and properties are still going begging in many areas.  Luxury retailers are doing fine.

The poor are also doing okay, at least under their own circumstances.  Tons of welfare and social programs and more on the way.  In many places someone on welfare can earn more money each day than if they worked at a job.  When I visit San Francisco and hear about all the high real estate prices and extreme residential rents, I see a city inhabited by only the very rich and the very poor.  The rich pay their own way, the poor live on a wide array of Federal, state, local, and private subsidies and cash handouts.  Section 8 and developer proffers for "affordable housing" make living sweet in SF a great deal for some of the city's poor.  But average middle class wage earners can forget about buying a home in San Francisco or even leasing an apartment there.  Soon add Seattle, Boston, New York, Chicago, and dozens of other cities to this list.

Unfortunately, the middle class is not doing okay.  Look at that chart above.  Who do you think is delinquent on their mortgages?  Millionaires or people on food stamps?

The chart at the top of this post is U.S. income distribution for the year 2010 based on census data.

When you start to realize how much of the country is not rich, you begin to see the social problems looming on the horizon generated by income and real estate inequity.

Of every 10,000 people in the United States, at best 400 have a chance of real financial wealth and retirement security.  Yes, this is merely a statistic generalization and some prudent individuals will beat the odds.  But the trend lines are there and clear.  What do the 9,600 people who won't make it, the 96% of the USA at the bottom, think when someone says the words "The American Dream"?

When someone tells me about the real estate recovery, I tell them the sobering fact that 76% of the people in the United States live paycheck-to-paycheck.  More than three out of every four.  How do these hard working stiffs buy homes, pay mortgages, or even rent an apartment with peace of mind?

In my thirty years in the real estate business I have never seen a more unstable, critical, or desperate market.  I wouldn't invest your money in this mess.  There are much better choices elsewhere.


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