Another Milepost On The Road To Oblivion

The LA Times confirms what we've known for a while now:  second quarter 2010 gave us a record number of bank foreclosures on homes.

The number of U.S. homes taken back by banks through foreclosure hit a record high in the second quarter, even as lenders delayed more homes from entering the process through short sales and loan modification efforts, according to data to be released Thursday.

This growing supply of lender-owned properties could set back the nation's housing recovery but probably won't sink it completely if the nation's employment situation doesn't deteriorate further and the economy begins to pick up steam, experts said. Sales of homes have faltered nationally in recent months with the expiration of government tax incentives for buyers.

U.S. bank repossessions increased 38% in the second quarter from the same period a year earlier for a record total of 269,952, according to Irvine research firm RealtyTrac. That was also a jump of 5% from the previous quarter. If that pace continues through the year, the number of homes taken by banks is likely to top 1 million by the end of 2010, said Rick Sharga, RealtyTrac senior vice president.

"It is almost a certainty that we will see over a million over the course of the year, and that would definitely be a record," he said. "It's serious, but it doesn't appear to be that these levels will crater the housing market if the economy at least stabilizes and we do start to see some job creation."

What do you mean "if the economy stabilizes"?  Anyone who's been paying attention knows that the million foreclosures themselves are the catalyst that will "crater the housing market" and the economy along with it.  In 2007 the first wave of foreclosures happened as the housing bubble burst and it caused the financial crisis.  The second wave in 2008 happened because the collapse went national and it tore up housing markets across the country.  We're now riding high on the third wave of foreclosures caused by the unemployment spike from the recession, and that's going to generate a second leg down in the housing market, which will in turn give us a double-dip recession (or more correctly a depression).

We're now fully in the middle of the deflationary spiral.  We're now choosing to do absolutely nothing about it and let the "free markets" solve the problem.  The resolution will be another plunge in housing prices in the next 18 months and more homeowners underwater and on the foreclosure lists...and the spiral will continue unless there is some sort of government intervention.

I said a year ago the cycle would be inflation, deflation, hyper-inflation.  We're well into the deflationary period now.  The hyper-inflation over-correction to fix it is coming sooner than you think.