The tiny uptick in home prices is a mirage brought on by three major factors. First, the $8,000 tax credit lured additional home buyers into the market. Next banks have held back on the shadow inventory thus artificially lowering the supply of homes on the market. Finally, the U.S. Treasury and Federal Reserve have artificially kept mortgage rates low by buying up some $1.25 trillion in mortgage backed securities. All this and housing prices have barely stabilized in some regions while foreclosures are at record breaking heights.
The shadow market is twice as big as the regular market! This for the biggest area in Southern California! And don’t feed me any of this hogwash that most of these mortgages will be modified. Loans that are modified are re-defaulting by 50, 60, and 70 percent and that is nationwide. Here in California you can imagine what that number will be. Also, many of the option ARMs and Alt-A products don’t even qualify for HAMP or any other loan modification because they are deep underwater. Want to try this exercise on another area? Let us look at Costa Mesa in Orange County for another example:
Keep in mind that this data is only for homes that have action being taken on. There is probably a shadow to the shadow inventory! That is, we have heard and know that many banks are not even sending notice of defaults to some late paying borrowers. In other words, there is a boatload of toxic debt out there.
