The housing recovery is a bank-promoted pump-and-dump scheme
Lenders engage in a pump-and-dump scheme to recover more on their bad loans and REO. Future buyers must pay bubble-era peak prices and endure a much higher cost of ownership, and they risk submerging beneath their mortgages if prices turn south again.
Lenders manipulate market supply to create market excitement and momentum so they can resolve bad loans and sell REO at higher prices in a massive pump-and-dump scheme. Pump-and-dump schemes usually involve thinly traded penny stocks, but the same principal applies to any asset class where the holder of an asset manipulates the market to later sell at a higher price. When its done with penny stocks, the Securities and Exchange Commission cracks down on scammers, but when its done by the too-big-to-fail banks with housing, lenders are aided by government officials and the federal reserve, the SEC looks the other way, existing homeowners don’t complain, and new buyers get screwed with higher prices and the risk of another downturn.
The report from RealtyTrac last week proves beyond the shadow of a doubt the supposed housing market recovery is a complete and utter fraud. The corporate mainstream media did their usual spin job on the report by focusing on the fact foreclosure starts in 2013 were the lowest since 2007. Focusing on this meaningless fact (because the Too Big To Trust Wall Street Criminal Banks have delayed foreclosure starts as part of their conspiracy to keep prices rising) is supposed to convince the willfully ignorant masses the housing market is back to normal. It’s always the best time to buy!!!
That’s exactly how a pump-and-dump works.
The talking heads reading their teleprompter propaganda machines failed to mention that distressed sales (short sales & foreclosure sales) rose to a three year high of 16.2% of all U.S. residential sales, up from 14.5% in 2012. The economy has been supposedly advancing for over four years and sales of distressed homes are at 16.2% and rising. The bubble headed bimbos on CNBC don’t find it worthwhile to mention that prior to 2007 the normal percentage of distressed home sales was less than 3%. Yeah, we’re back to normal alright. We are five years into a supposed economic recovery and distressed home sales account for 1 out of 6 all home sales and is still 500% higher than normal.
The distressed sales aren’t even close to the biggest distortion of this housing market. The RealtyTrac report reveals that all-cash purchases accounted for 42% of all U.S. residential sales in December, up from 38% in November, and up from 18% in December 2012. Does that sound like a trend of normalization? There were five states where all-cash transactions accounted for more than 50% of sales in December – Florida (62.5%), Wisconsin (59.8%), Alabama (55.7%), South Carolina (51.3%), and Georgia (51.3%). In the pre-crisis days before 2008, all-cash sales NEVER accounted for more than 10% of all home sales. NEVER. This is all being driven by hot Wall Street money, aided and abetted by Bernanke, Yellen and the rest of the Fed fiat heroine dealers.
The fact that Wall Street is running this housing show is borne out by mortgage applications languishing at 1997 levels, down 65% from the 2005 highs. Real people in the real world need a mortgage to buy a house. If mortgage applications are near 16 year lows, how could home prices be ascending as if there is a frenzy of demand?
Not to worry, Calculated Risk assures us that things are not as bad as the data clearly demonstrates because “The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index.” I feel better, don’t you?
Besides enriching the financial class, the contrived elevation of home prices and the QE induced mortgage rate increase has driven housing affordability into the ground. First time home buyers account for a record low percentage of 27%. In a normal non-manipulated market, first time home buyers account for 40% of home purchases. … This entire contrived episode has been designed to lure dupes back into the market,
artificially inflate the insolvent balance sheets of the Too Big To Trust banks, enrich the feudal overlords who have easy preferred access to the Federal Reserve easy money, and provide the propaganda peddling legacy media with a recovery storyline to flog to the willingly ignorant public. The masses desperately want a feel good story they can believe. The ruling class has a thorough understanding of Edward Bernays’ propaganda techniques.
“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of.”
- The foreclosure and delinquency crisis is past, and house prices are recovering due to improving fundamentals in the economy, and prices should continue to rise as the economy improves. All is well.
- Lenders deferred and delayed millions of foreclosures to artificially dry up the MLS inventory to force prices up by 20% to 40% in order to decrease their losses at your expense. As a buyer you may find prices lower in the future when the artificial stimulants are removed from the market, particularly since the fundamentals of job and income growth underpinning the market are very weak. Caution is advised.
The common perception promoted by the mainstream media is narrative #1; the truth is narrative #2. Lenders want the mainstream media and realtors to push narrative #1 as the propaganda arm of their pump-and-dump scheme, being completely selfish, realtors gladly oblige.
The federal reserve is printing money to make narrative #1 come true, but so far, their results have been mixed at best. The populace was sold on quantitative easing and mortgage interest rate stimulus as a measure to save “Main Street.” It was said this money pumped into the economy would create jobs, and the combination of jobs, increased incomes, and low mortgage rates would cause a boom in housing which would elevate loanowners above water. What was sold as a big benefit to Main Street proved another massive bailout of the banking industry with few tangible benefits to the people the programs were ostensibly designed to help out.
Proponents of these policies can point to the rapid increase in house prices over the last two years as a sign of success. While it’s true that many loanowners have emerged from beneath their debts, this policy wasn’t designed to keep them in their homes. The interest rate stimulus has merely elevated prices so when the terms of loan modifications increase borrower costs and push them out, the lender losses less money. (See: 2014 will see the “Rise of the Short Sale”)
The policy of mortgage interest rate stimulus can only be characterized as a success from the perspective of a banker; higher house prices are helping them recover more money from their bad bubble-era loans. Wouldn’t the real measure of success from the perspective of Main Street have people remain in their homes rather than simply improve the bank’s bad debt recovery? Since this entire policy is a pump-and-dump to benefit the banks, nobody really cares what happens on Main Street.
And what about future buyers? They are being forced to pay bubble-era peak prices and endure a much higher cost of ownership, and they risk submerging beneath their mortgages if prices turn south again. Is that a success for Main Street? It looks much more like a success for lenders. Not just do lenders recover more on their bad loans, they also get more interest income because they are making large loans to today’s homebuyers. It’s a win-win for the banks.
Is pump-and-dump the best solution the geniuses in Washington could come up with?
Well, it is for the banks….
51 FLOWERBUD Irvine, CA 92603
$488,900 …….. Asking Price
$395,000 ………. Purchase Price
6/1/2004 ………. Purchase Date
$93,900 ………. Gross Gain (Loss)
($39,112) ………… Commissions and Costs at 8%
$54,788 ………. Net Gain (Loss)
23.8% ………. Gross Percent Change
13.9% ………. Net Percent Change
2.2% ………… Annual Appreciation
Cost of Home Ownership
$488,900 …….. Asking Price
$17,112 ………… 3.5% Down FHA Financing
4.31% …………. Mortgage Interest Rate
30 ……………… Number of Years
$471,789 …….. Mortgage
$155,672 ………. Income Requirement
$2,338 ………… Monthly Mortgage Payment
$424 ………… Property Tax at 1.04%
$292 ………… Mello Roos & Special Taxes
$102 ………… Homeowners Insurance at 0.25%
$531 ………… Private Mortgage Insurance
$336 ………… Homeowners Association Fees
$4,022 ………. Monthly Cash Outlays
($644) ………. Tax Savings
($643) ………. Principal Amortization
$27 ………….. Opportunity Cost of Down Payment
$81 ………….. Maintenance and Replacement Reserves
$2,842 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$6,389 ………… Furnishing and Move-In Costs at 1% + $1,500
$6,389 ………… Closing Costs at 1% + $1,500
$4,718 ………… Interest Points at 1%
$17,112 ………… Down Payment
$34,607 ………. Total Cash Costs
$43,500 ………. Emergency Cash Reserves
$78,107 ………. Total Savings Needed