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Where Has My Deposit Gone?

Monday, August 22, 2011
Michael Pento

Of course, it is undeniable that the epicenter of this last credit crisis was the ending of a multi-year boom in home values. But growth in the real estate sector has led the economy out of nearly every recession in the past and is a key component to future consumer health and economic growth. Therefore, it is imperative to take the pulse of the housing market if you want to determine the timing of a return to robust GDP growth. I’m not at all saying home construction needs to return to the pre-bubble 2mm annual pace. Clearly there was an unhealthy and unbalanced concentration of capital in the real estate sector of the economy. And a more balance allocation of capital is desperately needed this time around. But nevertheless, rising home values are a key component to restoring solvency in consumer and bank balance sheets.

According to the Mortgage Bankers Association, applications for mortgages to buy homes dropped to a 13 month low in the week ended Aug. 12 and the share of delinquent mortgages rose in the second quarter to 8.44% from 8.32% in three months prior. Meanwhile, Bloomberg reports that cancellations to buy homes are up 10% YOY. Inventories are up and prices continue to fall despite the fact that the 30 year fixed mortgage rate has plummeted to 4.15%.

The summer swoon in stocks hasn’t helped render any confidence to prospective home buyers either. The S&P 500 has lost 16% of its value in the last month alone, diminishing greatly any potential deposit money that is available. And the fear of another dramatic downturn in the economy is becoming more evident by the day. The data clearly shows we are headed in the wrong direction in supplying the confidence needed to bring about a renaissance in the real estate market.