The sad story of North Lost Wages, Nevada, is an example of why the “shadow inventory” issue is a toothless bogeyman for the US as a whole. Not only did the bubble create false pricing. It caused the construction of entire “false communities,” based largely on speculative purchases never intended for occupancy. This bubble activity was confined mostly to 4 or 5 states California, Florida, Nevada, Arizona, and to a lesser extend Georgia.
Far fewer people really wanted to live in these areas than the number of units that greedy crooked homebuilders built and greedy crooked speculators bought, and really greedy crooked banks financed during the bubble. Massive subdivisions were grossly overbuilt, have become blighted and many are now dying, which will take even more inventory out of the market over time. These locales do not represent competitive marketable inventory in locations where people want to live. While some bubble areas remain oversupplied, desirable neighborhoods and communities have seen supply collapse.
Liquidity moves markets!Follow the money. Find the profits!
So please stop crying “shadow inventory.” I originally wrote, about two years ago, that it would not be a problem. Now that overbuilt areas are collapsing with blight, it is even less of a problem. This is not real inventory in real markets. It’s mostly fake inventory from fake markets that have completely collapsed. It will never harm the market in the vast majority of neighborhoods around the US where overbuilding happened, or where the bankster crooks overfished lower income urban communities for suckers f0r their toxic crap loans.
It’s a criminal shame for the impacted communities, and we still wait for the prosecutions of those who perpetrated outright fraud in all too many cases.
It’s also huge problem for the lenders that hold these properties, and ultimately for the US taxpayer backing Fannie and Freddie, because over time we will bear the losses through the Federal Government’s catastrophic guaranteeing of the loans in order to protect the bondholders (particularly the People’s Bank of China and the Bank of Japan) at our expense. But it is not a problem for the US housing market as a whole, outside of the relatively small number of bubble areas in California, Florida, and Nevada. And even in those markets, there are desirable pockets undergoing rapid appreciation from extremely depressed levels.
At least not until the financial system collapses. And neither you nor I know when that will be.
Here’s the summary intro from the Bloomberg story that caught my eye.
Nevada’s third-largest city, whose population more than doubled to 217,482 in 2010 from 1999, is on the verge of insolvency. Facing a $33 million budget gap, elected leaders last week declared a state of emergency and gave the city manager unprecedented powers to suspend union contracts.
The city’s travails mirror those of municipalities across the nation including Detroit; Providence, Rhode Island; and Stockton, California. They have struggled to contend with the costs of workers’ retirements and health care as the national economy fell into the longest recession since the 1930s, revenue flagged and population dwindled.
In North Las Vegas, as the largest U.S. casino market charted a modest recovery, the city is saddled with the consequences of a “false economy” based on ever-growing homebuilding, City Manager Tim Hacker said. Property values last year were half of what they were in 2007. One in every 216 homes was in foreclosure in April, three times the national rate, according to RealtyTrac Inc. in Irvine, California.
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