Dr. Housing Bubble — "The worst may still be ahead for housing"

Over 2 million loans are currently in the foreclosure process. To envision 5 million more foreclosures in the next two years isn’t hard to imagine since nearly half of those homes are already in the process and only waiting to be finalized. It should be obvious to most of you that the banking bailouts were merely programs to protect financial institutions from facing reality.

That was it. It was one giant bread and circus spectacle to fool the public into believing that somehow these bailouts were necessary in keeping home values inflated (instead they inflated the pocketbooks of bankers). Now the government is talking about renting out REOs as some kind of solution. We have gone back to square one except we have already spent most of the money on propping up the financial institutions that caused this mess.

People are losing faith in the system especially with the insanity now going on with the debt ceiling. Apparently we have no problem dolling out trillions of dollars to banks so they don’t have to practice normal accounting procedures but when it comes to paying our bills we now have to tighten our fiscal belts? What an odd universe we live in at the moment.

Read the whole post at The worst may still be ahead for housing – 3 million homes foreclosed on in the last three years with another 5 to 7 million foreclosures in the pipeline. One third of homeowners believe they are underwater.

Dr. Housing Bubble has been saying for some time that housing prices are ultimately a multiple of income, and workers' incomes have been stagnant and unable to support inflated housing values. The only way that housing prices were able to advance was lax lending and laxer ethics. This extravagance has now come home to roost. The US is experiencing a classic debt-deflation that still has a considerable distance to run before the market clears.

Now the problem that country faces is dysfunctional politics, ideological rigidity, and economic fantasy. If stimulus is not continued will the US is still in a balance-sheet recession, let alone the deficit cut, the consequences will be swift in coming and fierce in impact as the housing market unwinds on the second leg down.

The government has done all it has in its power to avoid a debt-deflation, yet the US is still tapped on one. Should the government fiscal position retrench, then expect the unexpected. Apparently, practically no one sees this coming.