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Tuesday, March 04, 2008


foreclosures outnumbering sales in some areas

barry ritholtz passes on floyd norris' column, which includes this stunning chart that contextualizes the foreclosure problem in the rust belt, including illinois.

california and florida were obvious but few expected, i think, the housing bubble to strike so deeply into michigan, ohio, indiana and illinois. the truth, however, seems to be that the financing mania of recent years has masked the fiscal and demographic decline of the rust belt to a degree that most everyone deeply underestimated -- and perhaps continue to underestimate.

i've been expecting price-to-income mean reversion in chicagoland, and that would be severe enough.

but what if declining underlying demographics and the reversal of the expansion of the percentage of homeowners in the population -- a product of easy money and soon to be reversed -- in combination with homebuilder exuberance means that chicagoland (and other midwestern urban areas) are simply overbuilt? it would probably result in reversion to trough, not to mean -- and that means even deeper price-ratio declines for chicago, sending prices down something like 40%.

and this of course is qualified by static median houehold incomes. what if the credit crush -- which is taking on incredible dimensions -- pushes the united states into a severe bank credit contraction and recession/depression? what if per capita incomes contract, something they haven't done in a long time but a condition certainly with precedent? the severity of house price declines would increase.

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