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Why the US economy faces headwinds:



Last week I made a comment about how the US recovery was jeopardized by housing.  This morning Zillow came out with a long list of issues with the housing market, but these are six that attracted my attention:

  1. Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent.

  1. According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20 percent in 2011.

  1. It is estimated that 25% of all mortgages in Miami-Dade County are “in serious distress and headed for either foreclosure or short sale“.

  1. Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.

  1. Sales of foreclosed homes now represent an all-time record 23.7% of the market.

  1. 4.5 million home loans are now either in some stage of foreclosure or are at least 90 days delinquent.

Miami-Dade is just insane, 1:10 was bad but 1:4 is a catastrophe.  The system will eventually work-out this mess.  There is approximately 125 million household in the U.S.  Despite the foreclosures and sales that have occurred nearly 3% of households currently pay nothing towards their housing costs, and therefore channel this spending towards other forms of consumption.  This spending will eventually disappear as the household move to rental accommodations.  My thesis is not that America is facing a depression (despite what the article implies); rather that growth will be substantially below par for the next three to five years, as the households relocate.

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