Foreclosure





Just when you thought it was safe to come out of the mortgage waters, more discouraging economic news from the housing front. Bloomberg reports that for the sixth month in a row US foreclosures on mortgages will exceed 300,000 per month. Ouch! From the article:

A total of 358,471 properties received a default or auction notice or were seized last month, according to data provider RealtyTrac Inc. That’s up 18 percent from a year earlier, and down 0.5 percent from July, the Irvine, California-based company said in a statement. One in 357 households received a filing.

What is real discouraging about this is the fact that a year ago there were already record high mortgage foreclosures. In fact, CNN ran a story here that headlines “August foreclosures hit another high”. This means that in a year, when things were already real real bad, things are now much much worse. At some point the mortgage industry will see some kind of recovery, but that is a simple matter of mathematics. In other words, eventually enough people will have foreclosed on their houses that as a matter of statistics we have to see some kind of “recovery” but that will just mean that things don’t suck quite as bad as they did before, but are still pretty bad.

There is a vicious cycle that any economist (or layman really) clearly sees. When you couple the fact that we have 9.7% unemployment, this means more and more people are loosing their jobs (remember, unemployment has gone up every month, not down), which means more and more people can’t afford their mortgage payments, which means more foreclosures, which then leads to further destabilization of the economy. Hopefully, at some point the cycle will break, but I don’t think we’ve really come close to what could be considered a recovery yet. In fact, I think we’re probably 6 months from any realistic point where things might start stabilizing, and that fact will have nothing to do with Obama’s economic policies. If and when the recovery does occur, it will happen despite our horrendous deficit, mounting debt and severely devalued currency. Indeed, I’m very worried that we are still looking at a double-dip recession where we are going to see another drop in GDP and unemployment.

One of the leading economists who actually predicted the global financial difficulties we are facing, Nouriel Roubini, thinks that a U-shaped recovery is probable. He stated:

“I believe that the basic scenario is going to be one of a U-shaped economic recovery where growth is going to remain below trend … especially for the advanced economies, for at least 2 or 3 years,”

What concerns me is that we are looking a flat or negative growth for a 2-3 year period. In most recent recessions we saw a V shaped recovery, fast decline in GDP, but also a rapid recovery to the point we were before the recession. Roubini warns, however, that if Obama and world leaders don’t figure this out and come up with a meaningful strategy to fix our economic woes that we will face a double-dip recession, which would be disastrous.

I would willing suffer through an 8 year Obama presidency if it meant that our economy were to recover very quickly due to his handling of the economy. However, his utter lack of any economic policy that resembles reality is making that possibility less and less likely.


Nouriel Roubini

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