As the Great Recession drags on, albeit
without official sanction, each and every silver cloud of economic news
continues to harbor a dark lining. Most recently, amidst the mainstream
media’s hubris over a supposedly stabilizing housing market, we read
yesterday in the Denver Post that the region is bracing for yet
another painful round of foreclosures. “Despite reports of a thawing
housing market,” the paper noted in a front-page article, “yet
another wave of foreclosure appears to be looming.” The fact that
lenders are gearing up for this is apparent in the sharp spike in
deed-of-trust assignments in Colorado. Compared to 2011, they’ve more
than doubled in the first five months of this year. Deeds of trust convey
ownership rights of mortgages and the ability to foreclose on them, and they
are therefore a reliable indicator of foreclosure activity to come. According
to the Post, if only half of the filings become actual foreclosure
cases, foreclosures could spike to 2007’s crisis levels.
We have long predicted that home prices
would eventually fall by at least 70% as debt deflation ran its course
globally. This would imply that, despite the unprecedented drop in
residential real estate values since 2007, residential values in the U.S. are
only halfway to a bottom. Meanwhile, spotty signs of recovery in the housing
market have caused the news media to hallucinate about the return of good
times, In Las Vegas, for one, home prices have fallen to levels so low that
even real-estate pessimists would have to concede that there are great
bargains to be had: three-bedroom homes with swimming pools for $100,000,
according to a friend of ours who lives in such a home herself. She paid
$325,000 for it, though, and although Nevada’s underpriced housing will
be a long-term plus for the local economy, it is unlikely to reverse the equity
loss suffered by my friend, nor her despondence over having lost so large a
piece of her retirement nest egg to debt deflation.
Miami real estate is recovering as well
due to a gusher of hot money from Latin America. The city is probably better
positioned than Las Vegas to benefit from this infusion over the long-term,
but condo prices are approaching frothy levels that could create another
bust. And in New York City, where Russian tycoons will not be outbid for
penthouses, the $100 million apartment seems likely to become
yesterday’s news before the inevitable bust arrives. Meanwhile,
Denver’s real estate market never got overheated to begin with, since
the city’s recovery from the oil-patch bust of the late 1980s was gradual.
For medium-to-large U.S. cities, the sluggish state of Denver’s economy
probably falls near the middle of the boom-bust spectrum, somewhere between
the Rust Belt and New York/Boston.
And that is why a wave of foreclosures
here would be bad news for other cities whose economies have been merely
muddling along. Despite this, the mainstream media have taken an activist
role in promoting the illusion of a housing recovery. A front-page story in
the Wall Street Journal yesterday offered statistics from Zillow to
support a picture of spotty recovery in real estate prices across the U.S.
But guess which city was near the top of the list, with home values rising
over the previous three months in more than 90% of zip code neighborhoods?
Answer: Denver. Considering what was being reported in the Denver Post on
the same day (see above), we should take the Wall Street Journal’s
good news with a grain of salt. As Denver goes, so goes the nation?
It’s a possibility worth considering as the mainstream media continues
to obsess over a recovery that isn’t, –and never was.