The worst is yet to come

First, the not-entirely-pessimistic news from the chairwoman of the FDIC, Sheila Bair:

"There are still some troubled assets on the books and we still have an economy that's under significant stress," said Bair in a 90-minute interview with Forbes reporters and editors on Friday.
"We still don't know how deep the recession is going to be," she said . . .
Bair reminded, 21 insured institutions failed in the first three months of 2009, the most bank failures since 1992. The FDIC's list of problem banks grew to 305 from 252. Those 305 banks at risk of failure have some $220 billion in assets. . . .
"Hopefully there are no more events that create liquidity stresses on the banks," Bair said, knocking on a wooden conference room table, "and now we're having more good old-fashioned capital insolvencies."

I would submit that when the FDIC chair is in a knock-on-wood situation vis-a-vis a collapse of the banking industry, things are probably much worse than we imagine. And now for the truly scary stuff:

A housing rebound is a virtual impossibility. Homeowners currently have the least amount of equity in their homes on record. Overall, the number of borrowers underwater climbed to 20.4 million at the end of the first quarter, up from 16.3 million at the end of the fourth quarter. . . .
There are 75 million homes in the United States. One-third of homeowners have no mortgage, so that means that 41% of all homeowners with a mortgage are underwater. With prices destined for another 10% to 20% drop, the number of underwater borrowers will reach 25 million.
There are over 4 million homes for sale in the US today. This is about one year’s worth of inventory at current sales levels. You can be sure that another one million people would love to sell their homes, but have yet to put them on the market. And there’s a tsunami of Alt-A mortgage resets now approaching our shores. That will get under way in 2010, and won’t peak until 2013. These Alt-A mortgages are already defaulting at a 20% rate today. There are $2.4 trillion Alt-A loans outstanding. . . .
With the 30-year mortgage rate approaching 5.7%, mortgage refinancing activity has plunged about 60% in the last 2 months. Mortgage applications for new home purchases collapsed at a 20% annual rate in May, too. Normality in the mortgage market appears to be years away.

There's much more where that came from. Frightening. Both of those items via The Johnsville News. And now, via Instapundit, we find Megan McArdle confronted by unrealistic expectations in DC real estate., where a $4,000 reduction to $495,000 is a "NEW LOW PRICE" on a 1,000-square-foot townhouse that sold for $460,000 four years ago.

This is perhaps the most frightening news of all, that so many people still haven't adjusted their expectations to economic reality. Maybe they're under the influence of Kudlowism or, more likely, they're liberals who think that the Department of Unicorns and Rainbows has already fixed the economy.

People who haven't actually tried to sell their homes, and who haven't paid attention to the real-estate market, seem to imagine that the crash that hit last September was just a blip signaling a short-term recession and now we're in blue-sky territory. When the sheriff's auction becomes the primary venue for home sales, maybe people will start paying attention.