Next Housing Bailout:Banks Need to Offload Millions of Unwanted Homes. Guess Who's Going to Buy Them

http://www.counterpunch.org/2012/01/23/the-next-housing-bailout/

Why are housing prices falling when the number of houses on the market continues to decline? Usually, when supply shrinks, then prices rise, right? So, why isn’t that happening now?

The reason is that housing market never completely cleared, which is to say that the Fed’s interventions and the manipulation of inventory by the banks prevented the market from finding a bottom. So, now– a full 6 years after the peak in home sales in 2006–the real estate depression continues while prices drift lower still. And–here’s the bad part–no one knows how much farther prices will drop, because the existing inventory of homes on the market (according to the Wall Street Journal) is presently 1.89 million while the shadow inventory (according to CoreLogic)… is “1.6 million units” which represents another 5 months supply, “the same level as reported in July 2011.” So we’re back to Square 1.

Here’s more from Corelogic:“Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales. CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more), in foreclosure and real estate owned (REO) by lenders.” (Calculated Risk)

So, there’s a mountain of backlog to work-off before the market touches bottom and prices stabilize. But even that doesn’t accurately describe the troubles facing the market. The biggest obstacle to any real recovery is the millions of distressed homes that are set to come onto the market in the next few years. Those numbers will swell by many orders of magnitude when the banks and the 50 Attornies General agree to a settlement on the Robosigning fiasco some time in early 2012. When an agreement is finally reached, a flood of foreclosures will pour onto the market pushing down prices, wiping out precious homeowner equity, further eroding bank balance sheets, and forcing more underwater mortgage holders to “walk away”. Here’s how CNBC’s Diane Olick sums it up:

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