Dominique de Kevelioc de Bailleul: As signs of a real estate market recovery creep back into the monthly data, along with a long-awaited settlement reached in the robo-signing scandal finalized, it appears that underneath the seemingly good news is a second round of foreclosures, instead, spelling more trouble for US housing prices and an already-anemic US economy, according to Trends Research Institute Founder Gerald Celente.
“Now that the banks have done a deal with the government after that so-called robo-signing scandal, they’re at it again and they’re on the foreclosure march,” Celente told Coast-to-Coast AM host George Noory. Get my next ALERT 100% FREE
In a landmark case, Wednesday, Judge Rosemary Collyer ordered five banks, Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM) and Ally Financial, to revamp the process by which these banks negotiate resolutions with delinquent borrowers. The settlement against the banks is reported to be worth $25 billion.
In essence, the settlement states that banks must now write down mortgages for select borrowers and help others through lower interest rates. In addition, the ruling grants previous borrowers restitution for losses incurred from previously foreclosure practices, of which the judge has determined as fraudulent.
On the surface, tougher foreclosure rules on the heels of better-looking monthly data could suggest a rebound in residential real estate may be around the corner.
Not so, according to Celente. He believes the settlement only serves as a green light for banks to restart foreclosure proceedings on millions of home that were on hold awaiting clarification of the foreclosure process handed down by the judge in the case of U.S. v. Bank of America (NYSE:BAC).
Round two of foreclosures comes this year, Celente speculated, which apparently jibes with the expectation of the Federal Reserve as well. The need to step up mortgage-backed securities purchases in addition to US Treasuries has been voiced publicly by some Fed board members following the Mar. 13 FOMC meeting. Market observers anticipate an announcement of further purchases by the Fed in the mortgage market in the coming months.
“We’re looking this year, George, about some 10 million homes are at the risk of default, some 12 million borrows or more than their homes are worth; they call it being underwater” he said. “And when you look at this, you know this is worse than the Great Depression.
“You know, adjusted for inflation, home prices are down 40 percent from their 2006 peak. So, no, this isn’t over by a long shot.”
When Noory asked whether prospective home buyers should wait or take the plunge now and buy a home, Celente said the critical aspect of the decision comes down to affordability as well as the particular property in question.
“It depends on my financial situation is [referring to prospective buyers]. If you really need a place to live and you can afford it, why not . . and it’s a great place, you know those are considerations to take,” he suggested.
Celente noted the cost of rental housing is on the rise as the demand for rentals has increased from the millions who lost their homes during the avalanche of foreclosures that began following the bubble pop of 2006-7. Though construction starts for multifamily house has risen and remains the only bright spot of the housing market, the supply of these units hasn’t kept pace with rising demand.
“And also, when we’re looking at the rental market, that’s skyrocketing too, in terms of people cannot afford homes now, so they’re going into rentals,” Celente concluded. “So it may be cheaper at some point to buy rather than rent again. . . It really becomes an affordability issue. If you can’t afford it, I wouldn’t buy it.”
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