Ivy Zelman: Home Prices Going Back Down

The Mortgage Bankers Association is reporting that nearly one in ten households with mortgages are at least one payment behind. That is a record, my friends. And it certainly means we cannot believe house prices have permanently stabilized.

The New York Times says:

The delinquency figure, and a corresponding rise in the number of those losing their homes to foreclosure, was expected to be bad. Nevertheless, the figures underlined the level of stress on a large segment of the country, a situation that could snuff out the modest recovery in home prices over the last few months and impede any economic rebound.

Unless foreclosure modification efforts begin succeeding on a permanent basis — which many analysts say they think is unlikely — millions more foreclosed homes will come to market.

Translation: there are a lot writedowns in residential real estate still coming. This is one reason bank credit is not going up significantly despite zero interest rates. Remember when I wrote about “extend and pretend?” This is the kind of thing that is holding up bank balance sheets. The article I wrote in October on short sales in North County San Diego highlights the issues involved. But at some point banks will have to take the hit (unless house prices magically go up to near previous levels – what everyone except renters wants).

Ivy Zelman has the same sinking feeling I do here; we don’t think house prices are necessarily heading up permanently. She even throws in a mixed metaphor to get her point across. She says:

I’ve been pretty bearish on this big ugly pig stuck in the python and this cements my view that home prices are going back down.

Look, the fake recovery is now in full swing. But I expect the recovery to hit a brick wall by 2011, if not earlier. While the proximate cause of my concern is the likelihood of increased taxes and/or reduced spending by the Obama Administration, it is jobs that concern me. See Calculated Risk’s post showing the correlation between unemployment and mortgage delinquency and you see the connection. The fact is we have a record number of foreclosures and that is a direct result of rising unemployment. Unemployed people don’t have any money, so they don’t pay mortgages. it’s as simple as that.

The interesting bit about the New York Times article was this:

The number of loans insured by the Federal Housing Administration that are at least one month past due rose to 14.4 percent in the third quarter, from 12.9 percent last year. An additional 3.3 percent of F.H.A. loans are in foreclosure.

The fact is the F.H.A is the next Fannie Mae (FNM). If you’re looking and wondering where the next bailout will be, take a good look at the F.H.A. Not only is this agency guaranteeing hugely delinquent loans, but the Economic Stimulus Act of 2008 doubled the maximum loan that it could insure to $729,750 in order to cover jumbo mortgages common in cities like New York, San Francisco or D.C.. The purpose was to give liquidity to the frozen jumbo market in high-cost cities. However, the net effect is that the F.H.A was expanding at exactly the time when loan quality was falling. There will be significantly more losses as delinquencies mount.

To make matters worse, the F.H.A. has an abysmally low 0.53% insurance reserve ratio – that’s the lowest ever. Yes, this ratio includes expected future losses, but you don’t have to be a rocket scientist to know any downside wipes these guys out. And that means more taxpayer money will be forthcoming.

Is this a pretty picture? No. But, is this what is going to happen? Of course it is. So when the bailouts come because the foreclosures begin again in earnest and politicians start saying, “who could have known?” you will have every right to be disgusted.

Comments

[The Hammer]

Nice article Ed. The corrupt politicians pandering to financial service and real estate interests is disgusting. it is gone way beyond unbelievable at this point.
The realwhores have predicted 4% price appreciation in 2010. What a laugh, but what would you expect from whores.

2009 Nov 20 09:15 AM

[John Galt]

The thing is everything is connected.

People are connected to jobs
People are connected to housing
Housing is connected to banks
Banks are connected to people
people are connected to businesses

and of course, we have Government connected to everything

2009 Nov 20 09:25 AM

[Tony Petroski]

Mr. Harrison.

The worst is behind us, despite what Ivy Zelman (great name) might say. This is the Age of Obama, and we're not looking back.

Housing is picking up (slowly). You'll know we're at a peak again when the Mexican crews are putting on the roofs.

2009 Nov 20 11:20 AM

[Malkiel]

Only a ver naive person would believe that a Republican president would have handled this any differently. The magnitude of the deleveraging storm is unprecedented and no political regime can stand by and do nothing in the face of it, even if what is done may fail in parts. A Republican president might have gone down the road of tax cuts, but those cuts would have been just as ineffective as stimulus (because they would have been applied as a bandaid on debt rather than as consumer spending or investment). All economic theories will fail here until the deleveraging subsides, but allowing people to be thrown into the streets to subsist on crime is not an option either...

2009 Nov 20 05:26 PM

[realold]

The "Age of Obama", Yikes! Using the problem as an argument for why there is no problem......Government spending gone wild, stimulus used for welfare (tax credits to those who don't pay taxes), trillions more on the horizon, the destruction of the U.S. healthcare system, preaching the decline of America on foreign trips, cap and tax, the list is endless, but we are not. The cure is to reverse this armegedon, not praise it!


On Nov 20 11:20 AM Tony Petroski wrote:

> Mr. Harrison.
>
> The worst is behind us, despite what Ivy Zelman (great name) might
> say. This is the Age of Obama, and we're not looking back.
>
> Housing is picking up (slowly). You'll know we're at a peak again
> when the Mexican crews are putting on the roofs.

2009 Nov 20 11:16 PM