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The Housing Recovery: A Fool’s Paradise

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The DOW, S&P, and NASDAQ are at record highs.

Home prices jumped 13.29%, the most since 2006, with average appreciation at 11% this year.

Housing permits are surging, best since June 2008.

New HELOC (home equity lines of credit) approvals are back to pre-crisis highs.

Renovation spending, paid for by HELOCs, is predicted to be a record high in 2013.

Interest rates are still close to all-time lows.  4.22% this week.

Yet, refinancing dropped 71% between May – Sept, to a 4 year low.

And, a massive wave of over $211 billion (yet still only 40% of the total market) in HELOCs issued from 2003 – 2007 start resetting their interest-only payment plans this year.  The reset could triple monthly payments for most, and even more when interest rates climb (most HELOCS are floating rate loans).  In 2012 the rate of delinquencies was 3%.  Equifax says 2013 looks to see 6% go bad (a 100% increase in one year).  BofA has said the losses on these loans could be an eye-watering 90 cents on the dollar.

Plus, the Federal Reserve is quietly talking about starting to taper off the money-printing as early as next month.  I don’t believe they can do that without crashing the market and the economy by some 40 – 50%, so I don’t believe they will taper at all.  This game has already gone on longer and become more absurd than many of us could believe.  Either way, it can’t go on forever so it won’t.  At some point this bubble will pop.

Now they said no one could see the financial crisis of 2008 ahead of time.  For most of us, including me at that time, they were right.  Fool me once, shame on you.  Fool me twice, shame on me.

This time around, it will be much, much worse due to two things:

1) The FASB decision in 2009 that allows banks to escape mark-to-market accounting on assets.  This one single rule change forever distorted the face of finance in this country.  It is 100% purely legalized fraud.

2) The $4.5 trillion in QE that has fueled this entire bubble.

We have corrected nothing.  We have learned nothing.  And we’re getting suckered in again.

Don’t be fooled this time around.

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