Delinquent U.S. Mortgages Break Records Again 22 comments
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As one U.S. propagandist after another calls a “bottom” in the U.S. housing sector, in the real world this sector continues plummeting downward – with no possibility of a (real) “bottom” for many years to come.
U.S. “delinquent mortgages” increased by 65% in the 2nd quarter of this year from the total of a year ago, according to a report from credit reporting agency Transunion. In a remark more suited to “The Daily Show” than a news article, a Transunion representative said that the “good news” was that delinquent mortgages “only” increased by 11.3% from the 1st quarter. An 11.3% quarter-over-quarter increase works out to a 50% rise on an annualized basis – and this is being called “good news”.
In more comedy-masquerading-as-news, F.J. Guarerra, Transunion's vice-president of financial services said that the numbers made him “cautiously optimistic” even though he had no idea of why there had been a tiny improvement.
Let me help out Mr. Guarerra. By the 2nd quarter of this year, the Obama “stimulus package” had kicked-in and the government claims it had ramped-up its mortgage-modification plan. In addition, the 2nd quarter is the peak period for annual, U.S. housing sales – allowing more Americans to bail-out of their delinquent mortgages through selling their homes. This was aided greatly by the decision of U.S. bankers to dramatically reduce the percentage of foreclosed properties which they were actually listing for sale.
While there were over 360,000 foreclosures in the month of July, U.S. banks only sold about 80,000 foreclosed properties (and total sales in the U.S. housing market were only 400,000 units). This followed up June numbers, where banks only sold 130,000 foreclosed properties in June – when foreclosures were also well over the 300,000-mark. Given that foreclosed properties are generally the first properties to be sold (because of heavily-discounted prices), the numbers clearly indicate that U.S. banks are currently keeping roughly 2/3 of their foreclosed properties off the market.
As I have written on many occasions, things won't start to get really bad in the U.S. housing market until next year – when a two-year spike in mortgage-resets begins (see “U.S. mortgage-crisis to get MUCH worse in 2010-11”). This inevitably means a sharp spike in foreclosures, above the record number of foreclosures which is already occurring each month.
This upcoming surge in foreclosures will come after millions more Americans have lost their jobs, after U.S. interest rates have moved higher, and with the number of “under-water” mortgages approaching 50% - across the entire U.S. housing market.
In addition, U.S. home-builders continue to build far more units than they are selling every month, and there are already more than 20 million empty homes in the United States. Does this sound like a market which has “bottomed”?
Obviously, U.S. banks cannot continue to hold 2/3 of their “inventory” of foreclosed homes off the market. The housing market is now past its peak season. Given the propensity of U.S. equity markets to suffer “crashes” in September and/or October, and given how radically-overvalued those equities have become, the plunge looming ahead for U.S. equities is a likely catalyst for the collapse in the U.S. housing market to once again accelerate.
The U.S. housing market had been disintegrating three times faster than during the Great Depression. The fact that this collapse may now only be twice as bad as the Great Depression (temporarily) is obviously not “good news”, and even more obviously could not possibly be mistaken for a “bottom”.
It might be possible to call a “bottom” in the U.S. housing market in 2012 – after the upcoming spike in mortgage resets and foreclosures – although I personally consider this much too soon. With more inventory “overhanging” this market than any other real estate market in history, it is only logical to assume that it will take longer to “chew through” than in any other housing collapse in history.
This likelihood becomes a virtual certainty when we consider that vast numbers of jobs are still being lost each month in the U.S., and those who still have jobs are seeing their wages falling. When potential buyers have no spending-power, the only way they can purchase homes is through taking on exactly the same sort of over-leveraged mortgages which caused this crash in the first place.
However, just as the U.S. government believes it can borrow-and-spend its way out of a problem created by decades of excessive, borrowing and spending, apparently U.S. housing pundits see the “solution” to the U.S. collapse as creating millions of new, over-leveraged mortgages in order to bail-out all the currently over-leveraged mortgages.
There is an expression for such a business model: it's called a Ponzi-scheme.
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The uptick in housing last month reflects seasonal changes and a shifting of pain from the low end of the market to higher priced homes; nothing more. Homes that are priced over $1 million are now sitting on the market for 20 months.
The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington. According to Zillow's latest Homeowner Confidence Survey, 12 percent of homeowners said they would be "very likely" to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said "likely," while 12 percent said "somewhat likely." Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.
According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.
"At this pace, it would take about four years to run through this amount of backlogged inventory," he said. "Shadow inventory has the potential to give us another leg down on home prices during the second half of the year," said Steven Wood, chief economist at Insight Economics in Danville, California. (Diana Olick, "Shadow inventory lurks over US housing recovery" CNBC)
The consumer is not going tolead us out of this mess.
As with most industries, housing is a mosaic of variable and its health cannot be measured by, say, one variable that happens to measure unit sales. They have been improving but not for the reasons most think.
It is estimated 24% to 32% of homeowners are underwater and, despite moderating beahvior in the case Schiller index, most believe as the author suggests that this will quickly move to 50%. This is enornmously significant because negative equity is the leading driver behind foreclosures.
Even if put aside resets and continued deterioration in labor markets, one could make a case that foreclosures might double should the number of homeowners under water do the same thing. Clearly, this would put further downward pressure on the market.
Several weeks ago John Mauldin shared some research the strucure of existing home sales and after you do away with foreclosures, REO sales and people who have a gun to their head, only 10% of the sellers are going about the chore of selling in normal and usual ways. This hardly suggests a stabilizing market when 90% of the sales are distressed in one form or another.
In the same article, Mauldin went on to say that there are a minimum of 500,000 homes simply sitting on bank balance sheets; if added to the "counted" inventory of 3.8 million, this would increase the real inventory to 4.3 million and expand the months of supply from 9.3 months to 10.5 months.
Lastly, as with new homes, existing homes sales are highly skewed by both price and georaphy; because of the tax credit, many existing homes are being bought by first time buyers and there is widespread concern these buyers, and the support they provide for the market, will go away at the beginning of the year.
As the market "stabilizes" I think we will see widespread differences across the regions with high-end homes in the rust belt faring the worse and recovering last.
Could you give your definition of a DEPRESSION.
IMO the very financial people that fostered this mess are now
putting pressure on the people that they harmed. Instead of offering
to help, they are driving consumers into the ground.
Just as Hoover and FDR turned the 1929 market crash into the Great Depression, Obama and company are determined to do the same thing. Their rationale for why it will be different this time is the same as it has ever been with every failed socialst policy - WE JUST DIDN"T SPEND ENOUGH MONEY THE FIRST TIME!
While I'm sure there is probably some "text book" definition out there, I would suggest there are 3 main components of a depression:
1) EXTREMELY high unemployment
2) significantly negative GDP
3) asset-deflation
On Aug 19 02:05 PM RATHER FISH wrote:
> JEFF nice article.
> Could you give your definition of a DEPRESSION.
>
> IMO the very financial people that fostered this mess are now
> putting pressure on the people that they harmed. Instead of offering
>
> to help, they are driving consumers into the ground.
Then they use the remaining funds to finance construction companies to build new houses so people can move down from a house they can't sell to a cheaper house. These houses are the ones banks try to sell since they need the money to finance the new mortgage which is sold to Fannie Mae or Feddie Mac because the prospects of default far outweigh the low interest rate they did the deal with.
Given this is the current state of the market you can determine that the market will balance out about the time all the houses no one is living in collapse in disrepair. Say around 5-7 years. Of course, you can hasten that with fires, people riping out plumming and gutting the house to sell the steel and copper pipes, etc. I guess that's the criminals' way of contributing to the economy, although they are the minor crooks in this system compared to the banking system that is literally running the housing sector into the ground.
The sooner the banks foreclose the sooner they can get more government assistance and begin the rotting process to get your house off the market for good.
Although Real Estate Always "Plays A Role", Leverage Is The Corollary To Examine.
Other "Fuses" Set The "Margin Calls In Motion" But The Outcome Is Very Similar No Matter The "Instrument".
On Aug 19 04:09 PM Thomas J. Gordon wrote:
> I'm not sure it's valid to compare housing prices now with housing
> prices during the depression. I could be wrong but I don't think
> there was a big runup of housing prices before the depression. I
> don't think the mortgage infrastructure was in place in the 1920's
> to support a huge runup in housing prices. I agree with a lot of
> what this article says but to say that housing prices now are falling
> faster than they fell in the depression doesn't mean that our current
> situation for the overall economy is going to be worse than the depression.
Well they can, and they are. And I according to my family agents, they are also being IMPOSSIBLE to work with.
And, in Michigan at least, over 60% of the sales can be traced back to FHA or Rural Development loans.
AND, the feds gave cities grants to buy foreclosed homes and TEAR THEM DOWN. Gifting the lots to private builders - of their choosing - to build "new, affordable homes." In actuality they are tearing down fine middle class homes, to build more expensive middle class homes and cement their political aspirations with future campaign cash.
Bottom my arse.
These "experts" are complicit idiots, as is BOTH political parties.
At the rate Washington is pumping out job killing "reforms," I'll call bottom for the housing market. You will know we are at bottom when our rent checks are going to China.
And we can see foreclosures accelerating again as the alt A and other exotic mortgages now come home to roost.
There is no way housing will lead the way out of recovery any time soon.
I have read there may be as many as 18 million vacant homes - though any of these homes trashed by squatters and copper wire thieves will have to be repaced if/when we really start to recover 10 years out. At that point we will again be overwhelmed with cheap foreign labor from Mexico to keep wages and inflation down and margins very high.
On Aug 19 02:18 PM pslater wrote:
> Definition of depression: Follow the economic policies of Obama,
> Pelosi, Reid and the rest of the lunatics in Congress.
>
> Just as Hoover and FDR turned the 1929 market crash into the Great
> Depression, Obama and company are determined to do the same thing.
> Their rationale for why it will be different this time is the same
> as it has ever been with every failed socialst policy - WE JUST DIDN"T
> SPEND ENOUGH MONEY THE FIRST TIME!
Yes, indeed, there is a very large number of real estate inventories whose owners are either unable or unwilling to pay for them.
Does it mean housing prices will go down and down? The very important variable here is a rate of future inflation. The US populous must have some "hard assets" to protect themselves. For the majority, the most affordable hard asset will be real estate.
At the same time, real estate will not gain its real value before a climax when the federal government stops interfering into real estate market and stops "bailing out" state and local governments who make owning real estate prohibitively expensive.
Remnants of the 'fever' are still alive and ready to drag people back into the whole affair. Maybe I can find one of these uninformed suckers and get them to buy my place, and bail me out. So, Mark, don't break the news to them, I need a buyer!
TIA
FISH
On Aug 19 05:48 PM Jeff Nielson wrote:
> Hi Rather Fish.
>
> While I'm sure there is probably some "text book" definition out
> there, I would suggest there are 3 main components of a depression:
>
>
> 1) EXTREMELY high unemployment
> 2) significantly negative GDP
> 3) asset-deflation
It appears that we're pretty close to there already. Today, on CNN radio, it was announced that in Nevada, 71% of homeowners are upside down, in Az., its just north of 50%, in Ca., its 42%, and here, in Illinios, its 32%. I missed hearing what the source was for those stats...I was more than a bit numbed.
While certainly no real estate expert, nor terribly familar with Ca., I've got the impression that Palo Alto is one of the "tonier" areas of the state, so probably not very representative of the state, as a whole.
Regarding home prices generally, I seem to recall hearing talk of current prices being back around 2002 levels, although I can't vouch for the veracity of that comparison. Maybe some commenters that are involved in real estate might be able to shed some light.
On Aug 20 06:30 PM Thomas J. Gordon wrote:
> Old Trader, that is numbing. How can any lousy house in Palo Alto
> still sell for over a $1million and 42% of the people in CA be under
> water? I guess if there was a ton of 1rst refinancings close to the
> current time period 42% could be under water. I read somewhere that
> a 1/3 of the people in the u.s own their house free and clear. that
> must not be true in california. It makes me wonder what year we've
> gone back to in terms of housing prices. Are prices now the same
> as they were in 2002 or 1998?