How You View Things
There has been a flurry of talk about a possible Value Added Tax coming our way. I am going to probably blow some minds right now and maybe generate some nasty comments, but I am actually not against the VAT overall. Now do not get me wrong, I am against taxes in all forms at all times (and I am well versed with all the negative aspects of this tax), but at least this one is going to target everyone that buys stuff, including the 50% of the country that pays zero income taxes. At least I can work with that. Add to this businesses will have to pay at all steps of the process and think how those amazing profits during this V-shaped recovery will be able to handle just that. I say go long tax accountants if it comes true.
That said, how you view things fits here because in it's simplest form the VAT is a subtle, tricky tax that goes unseen for the most part. That is why governments love them. Consider the following:
The Government spends too much and wastes way too much. We cannot expect them to change and we cannot vote them out because the next set of people do the same thing
How you view things puts you into one of two camps (I am simplifying, but in the end this is all there is to it):
A - We need to support various programs and if that comes with the price of the waste and corruption we must lie, beg, steal, and tax to get the money the government needs
B - The only way to get change is to starve the fools into default and we will start over
Where are you?
Where Did All this Shadow Inventory Come From?
Today brought word that retails sales were making a killing and blowing away expectations (who does these estimates anyway?). While rates of change make zero impression upon me (all that matters is what the final numbers are, not the rates of change) all the spending seems at odds with high unemployment and falling wages. From Yahoo Finance we get this dandy of a headline:
Shoppers hand retailers a basket of Easter cash
Poetic, just, and perfect for our times. Even better material in the story:
"There was a lot of talk about the frugality of the American consumer and that the recession taught people to save more," said Sherif Mityas, a partner in the retail practice at management consultant A.T. Kearney. "But U.S. consumers have short-term memories."Never a more apt description of what ails us.
So where is all this cash, plastic, or whatever coming from? I really have no idea. I would guess unemployment checks that run for all time help, but that does not seem quite right. Home equity extraction? Ha, kidding. Maybe an alternative form of mortgage money extraction? Like, not paying your mortgage:
Are Strategic Defaults Fueling Consumer Spending?There is more in the article.
It wasn’t until this past week when a colleague mentioned the term strategic default did I realize what was likely occurring. Many consumers are spending their mortgage payments! It’s beginning to make sense in the most disturbing way. As homeowners face staggering payments on houses that have negative equity, a large number are simply deciding not to pay their mortgage bill, resigned to the fact that eventually they will lose their house.
And what happens with the money that would have been sent to the lenders? Well, an increasing mentality of “eat drink and be merry – for tomorrow we’re evicted” has set in.
I have to say I cannot believe that enough people are not paying their monthly mortgage to goose auto/electronics/other retail sales very much. I just do not think the numbers add up. I could be wrong.
And it appears that I might be.
If this story has merit, suddenly the numbers do start to add up:
Bank of America to Increase Foreclosure Rate by 600% in 2010
You did read the title right. How's that for a rate of change you rate of change fetish freeks out there!
From the story:
I attended a local Building Industry Association conference on Friday 26 March 2010. The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010.Wow, just wow.
After his surprising statement, two questioners from the audience asked questions to verify the numbers.
Bank of America is projecting a 600% increase in its already large number of monthly foreclosures.
This isn't unsubstantiated rumor; this comes straight from one of the most powerful men in Bank of America's OREO department (yes, that really is what they call it). It appears they have too many properties already.
Of course there are many that have argued the "shadow inventory" story was way overblown. Try that now.
There are many saying housing has bottomed. How does that look?
I have heard time and again that banks are on the mend and their books are not as bad as I would portray them. OK.
It is obvious that banks have been sitting (squatting?) on homes in foreclosure, without the foreclosure part. The tales of 2 years payment free may well be very true. Could this possibly help things like sales? I could be persuaded at this point!
Along these lines, an example. If you have not been reading the comments section, you are missing plenty. Loyal reader Gawains is an experienced real estate professional that knows the ins and outs of the business. From the last comment thread:
Today was repo day. There were probably, oh I don't know, 500 foreclosure sales on the courthouse steps. So we should be getting a lot of new assignments over the next few days. What fun that will be.I cannot believe $35k makes that house whole again, but maybe he gets deals.
Want to know what I did this afternoon? Well, we got a request for a full interior price opinion and repair addendum on a repossessed home listed with another company. The company is thinking of transferring it to us because it hasn't sold. Current list price, $175,000.
Now, this house happens to be in one the nicer, established neighborhoods in north McAllen. Great location, good schools, easy access to main roads and shopping. 5 bedrooms, 4 baths, 3500+ sf, wood fence, in-ground pool. So I went over there to check it out.
Oh, my God. It's been completely stripped! All the lights, all the interior doors are gone. So are the appliances, the a/c unit and the pool equipment. The granite counters in the kitchen are ripped out, and all the cabinet doors are gone. Same for the built-ins and bathroom vanities. But this is what really gets me. They took all the drawers too.
Drawers? Why would you steal drawers? I mean, it's not like you can just slide them into another cabinet. You'd have to build new cabinets specifically to fit the drawers! It doesn't make any sense.
If there's one thing I hate more than a thief, it's a stupid thief.
So, I'm looking at about $35,000 in repairs at least. A typical homebuyer cannot purchase this house. It's not fit to live in. Only a professional investor with a lot of capital can buy something like this.
Calling all flippers, calling all flippers. Oh, sorry, I was having a flashback.
This is what is going on folks. You will not see it in CNBC. You will never, ever see Ben Bernanke have to address something like this at one of his dog and pony shows at the Senate. Want a glimpse at how bad things were at the top? Gawains offers:
I see this all the time. Here's how the scam works.Talk about closing the barn door after the goats have left!
No credit? No problem! You too can buy a house. No down payment? No problem! We can give you a 0% down, interest-only ARM, and roll over the closing costs. It will cost you practically nothing.
Oh, and you'll need furniture. No money? No problem! You can completely furnish your new house with no down payment and no interest for a year.
So what these people do is fill out some paperwork. They can even lie bald faced, since no one really cares. They move into the house and furnish it. They do not make a single payment. What does it cost them? Utilities and food for a few months.
Then, when they get the first default notice, they just rent a moving truck, load up the furniture, strip the house, and disappear.
Great way to renovate and refurnish a house in Mexico, where you cannot be prosecuted since the crime occurred in America.
You guys have no idea what I deal with. And frankly, to tell you the God's honest truth, I'm more than disgusted.
Two years ago I got this assignment on a ranch house out in the middle of nowhere. It had been completely gutted of course, but here's the thing. They left the back door open and the goats got in and shit all over the house!
And I have to walk through this mess, while taking pictures and making notes.
Then I get this phone call from a contractor who wants to get into the business of cleaning repossessed homes. Oh, really? You want to clean a home? I got a home for you to clean.
After he had shovelled all the goat shit out of the house, it was a four-foot mound in the front yard that had to be hauled off.
Needless to say, he never called me for another cleaning again.
Going back to my intro question, where are you now?
Have a good night.