American real estate still good for short-term speculation

• As long as jobs remain in the doldrums…
• … property prices will remain depressed

As the American economy emerges from its coma, ongoing corrosion of labor markets continues to push the real estate foreclosures rate to new heights Close to one in seven home loans continue to be underwater or even deeper, making these troubled times the worst that the American Nation has experienced since 1972.

While Washington continues to advance HAMP in the face of tactical maneuvering by the big American banks, the harsh reality is that a home can never be affordable for Mary and John Doe without a paycheck. These are the six main drivers behind the American property market’s current dismal performance.

• The early days of the foreclosure crisis were born out of imploding sub-prime and adjustable exotic mortgages designed to shoehorn entry-level first-time property buyers into an overheated property market. As the malaise developed further, the root cause of the problem spread from overpriced real estate to the more fundamental issue of unemployed prime mortgage rate borrowers without income to service their loans. As a result, more expensive homes in better suburbs also joined the ranks of the foreclosed.
• Lack of confidence begets even less confidence, and this applies to American States as well. Regional concentrations including Arizona, California, Florida and Nevada have emerged where as many of one in four homes are affected, causing banks to panic, and force prices even further down.
• Inventories in the context of the real estate market are the real estate owned properties that the banks now own. These represent a potential downward pressure on property prices that lenders are trying to manage for own interest’s sake. By far the larger threat, in terms of both numbers and future uncertainly, are the potentially alarming number of future foreclosures that will emerge if the unemployment situation cannot be turned. The sad reality is that supply exceeds demand, and that few genuine buyers will enter a property market willingly where the threat of a flood of cheaper opportunities could potentially ruin their investment.
• The fanfare that accompanied the Making Homes Affordable Program was identified by many as a sign that everybody would helped. That premise has been as effectively destroyed as would driving a goods train through a Dutch dyke be. In this case the hole in the loan modification rescue effort is as simple as it is worrisome –there is no way to make a home loan affordable for a borrower with no money to afford.

There is no real possibility of a return to property market normality in a situation of shaky employment numbers. Even when the labor market does finally turn, recovery will be slow. There is also inertia in the system, and, like a giant oil tanker, the good ship America will take a while to turn around.

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