Here it comes....
Mr. Mortgage once again blowing the doors of reality for those who live in holes - 1/3rd of all homeowners who bought in the last five years are underwater. (Bloomberg was cited as the source on this)
Oh, and this understates the case, because many people HELOC'd or Refi'd after the original purchase, which just makes the problem worse.
The worse news is that these are averages; in several parts of California (Stockton, Merced, etc) the percentages are over 90%, and in several others (inland empire) its over 80%.
The ponzi finance folks have overplayed their hand, and we're going to have to pay for that. Credit bubbles never unwind "cleanly" or "nicely"; there is always an element of severe pain associated with such games when they come apart, and that time is now.
Why should homeowners not intentionally default if they're underwater and have nothing else that can be taken by the lender beyond the house? You've read several times here in these pages that in my opinion, if you're underwater you have every right to dispassionately evaluate your circumstances, including the impact on your credit from intentional default, and if it makes sense, to do exactly that.
There are many who say there is an "ethical obligation" to pay what you agreed to pay. But, in fact, that's simply not true. The contract you signed is within the four corners of the page, and it spells out the precise relief that is available to both sides if the bargain is not upheld, along with the law in your locale. Further, there were plenty of elements of fraudulent "valuation" in many of these deals, including sellers who "silently" contributed to the purchase, thereby causing comparables to be recorded at higher prices than actually were paid. This was and is an intentional distortion of the market price for those homes, and it is still going on with these "down payment assistance" programs.
In many cases the law makes clear that the only relief available to the lender is to foreclose and take your house.
As I've noted, companies exercise what is called "efficient breach" - that is, an intentional breach of a contract undertaken by them because the costs to he breach are less than that of compliance - all the time.
In fact, your bank has probably engaged in this practice in their business efforts at some point in the last few years, and if it made sense for them to do so with you, they would.
If you get caught in the next few years having to move then you will not have choices. It is far better to decide to default than to be forced into it, all things being equal. The "average holding period" for a house is seven years; jobs change, you may get married or divorced, or have some family event that mandates that you change your residence.
So I repeat and emphasize my previous advice:
If you bought a "bubble house", defined as anything bought in the last five or so years, find out where you stand in terms of your mortgage(s) and the home's value, and then go see a good attorney to explore your options. Spend the few hundred dollars.
If it makes sense for you, after consideration of all of the impacts upon your life, positive and negative, to intentionally default on your mortgage, then do so.
By doing so, if it makes sense in your individual circumstance, you will be helping the market to clear.
On the Price Inflation front, has anyone noticed the change in beef prices recently? I certainly have, and its not pretty. Beef had not participated (much) in the price inflation among agricultural products until recently, as feed costs rose. This sounds nutty but its true - ranchers were selling down their herds because they couldn't feed them, preventing the price increases from showing up as beef supply was ample.
Not any more! In the last few weeks beef prices have started to spike hard across the board. While this is not yet as bad as it could get, for those of us who are carnivores (myself included) this is making a noticeable dent in the grocery budget.
This is unlikely to be a short-term phenomena even if feed costs were to retreat (which they won't until and unless we stop being stupid and burning food in our gas tanks!); see, it takes time to grow cattle, you know. They don't pop out of their mommas ready to be slaughtered and turned into hamburger and sirloins.
Dairy continues to rocket higher as well. Cheese, in particular, has undergone a rocket shot in price, rising by about 25% in the last couple of months. That one wasn't missed by me either.
Its just more of the "squeeze", and the reason that those who claim we are going to have a "hyperinflationary" blowout need to check their thesis.
If you squeeze prices on one end and earnings and wealth on the other, how do you sustain hyperinflation? Remember, government gets its ability to spend by taxing people. If you squeeze people on both ends then the taxing power of government disappears along with the population's standard of living and jobs.
This is the underlying problem with the hyperinflation thesis; every government that has attempted it has ultimately blown their own head off.
The policy wonks in the government, including The Fed, talk tough about "keeping it from happening here" but when push comes to shove, as we have seen, attempts to prevent a debt bubble deflation are tremendously destructive to the real purchasing power of the population - and their efforts have, thus far, been half-hearted!
This is the ultimate check and balance on such behavior, because without discretionary purchasing power there is nothing to tax, and the government dies.
The sooner we as Americans recognize that we are going to have to take our medicine - that this "debt bubble" behavior was not limited to housing, it was not limited to consumers, but in fact was spread through the entire economy and must be forced to deflate, the better off we shall be.
Audio Streams
